Tipsheet: How to Track the Monetization of the Safety Net

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The Story

Roughly forty years ago, a new industry arose in the U.S.: The monetized safety net. Today, the industry is barely known, although it yields more than $4 billion a year in revenues across a handful of companies—and shapes the lives of tens of millions of Americans.

For most of 2018, Type Investigations and Mother Jones explored this industry, identifying five major players—and centered an investigation on Maximus, Inc. a corporation accounting for half the industry and, by the company’s own measure, 59 percent of Medicaid clients, according to a 2014 Maximus presentation. We requested Maximus contracts from all fifty states, the federal government, Washington, D.C, and New York City. We found that the company has worked for 44 of these governments in the last decade. These documents can help local reporters, advocates and officials learn how Maximus is operating in their communities.

Why you should care

The monetized safety net is booming—and the Trump administration’s work requirements are a new market opportunity.

The Trump administration’s push towards work requirements for public benefits is imperiling the poor and is also fueling a profit center for this unheralded industry. Virtually unknown outside the corporations and government agencies it comprises, the monetized safety net industry revolves around a handful of companies that run the internal paperwork of public assistance programs for the poor. The more paperwork standing between the poor and the help for which they qualify, the more money the companies make.

Work requirements may offer the biggest market of all. Restrictions on aid offer a significant market opportunity for the monetized safety net industry. This is particularly true of work requirements … which require tracking whether people have worked; how many hours they have put in; and whether the ‘work’ meets program mandates. This offers a massive market opportunity for Maximus. “The movement to add work requirements—it’s a competency that no other company in the market has like Maximus,” Bruce Caswell, Maximus CEO, told investors in May 2018. In November 2019, Michigan added $105 million to Maximus’ enrollment brokerage contract to cover the bureaucracy of the state’s Medicaid work requirements. The new work amounted to a 24 percent increase in the company’s revenue in that state.

Proponents say work requirements help the poor …

Public officials supporting work requirements say they are the best way to help the poor: “True compassion is giving people the tools necessary for self-sufficiency … allowing able-bodied, working-age adults to experience the dignity of a job,” said Seema Verma, the head of the Centers for Medicaid and Medicare in 2018.

… but work requirements hurt more people than they help.

The primary effect of work requirements is to kick people out of programs for which they are poor enough to qualify; there is no evidence they increase clients’ drive to work. In Arkansas, the first state to implement work requirements for Medicaid, more than 18,000 people lost their insurance for failing to meet its community engagement requirements between their introduction in June 2018 and a court ruling that blocked the program in March 2019. The month before that court order, reported the Kaiser Family Foundation, fewer than 600 Arkansas Medicaid clients were reporting  new work.

In other words, the monetized safety net profits from policies that hurt people.

This disconnect creates an important line of reporting, tying the demise of the safety net to a  lucrative market opportunity for a new—and barely known—corporate industry. Today, the monetized safety net industry is dominated by a handful of companies: Maximus and Conduent—a Xerox spinoff—report the largest contract amounts for safety net services, and list Automated Health Systems, Faneuil, and KePro as competitors. These firms reported roughly $4 billion in revenues in 2017. Several other large firms, such as HP, provide safety net infrastructure but do not report how much income they derive from public contracts.

First: Get The Contracts—and solicitations and proposals for them

If you’re looking into Maximus specifically,

Type Investigations’ dataset covers all publicly available contracts and their amendments from 2008 to early 2018—and a handful from 2018 and 2019, including new contracts in Michigan, North Carolina and Washington, DC.

If you know which company you’re looking into,

check with your state contracts or procurement department. (If you’re in a city or county big enough to contract locally, such as New York City or Los Angeles County, go to their version of same.) Ask for all public contracts with the company in question, as well as all attachments, amendments, renewals and extensions. Many states provide this information via accessible websites, but if yours does not, you may need to submit a Freedom of Information Request.  (If you run into trouble with a FOIA request, try reaching out to the  .)

If you can, get a copy of the solicitations—also called Requests for Proposals or RFPs—and proposals submitted in response. The solicitations may contain valuable information such as the number of people the company is expected to serve, and what the state is asking companies to do. (When it comes to work requirements, there should be estimates of how many people the state expects to be subjected to the new rules—and how many they expect will be kicked off.) The companies’ proposals will show you their plans and, often their budgets—and may contain information about its reach that’s hard to find elsewhere—like a list of its enrollment contracts, along with state and size of caseload, since 1996, or these charts suggesting that Maximus helps administer eligibility for 59 percent of Medicaid clients.

5 Stories to Look For—and How to Find Them

  1. Look for: Botched contracts

Maximus’ primary work for the last two decades has been running public health care enrollment and welfare programs, earning most of its revenues from related paperwork. In 2018, the company’s management of Medicaid enrollment in Kansas came under sharp criticism after needy seniors were left waiting months for care; state officials determined that Maximus underbid for the contract and did not have enough staff to process applications. In Oregon, Maximus competitor KePro came under fire for moving mentally ill Medicaid patients out of locked facilities without sufficient oversight; the practice resulted in serious injury to several patients.

If private contractors are helping to run social services in your state, city, or county, see how much money they make from those contracts—and assess whether they are doing what they’re supposed to: Facilitating access to care for those poor enough to be entitled to it under law.

How to Find It:

Ask local advocates and service providers how easy it is for people using public benefits to actually use those benefits. Ask if there are long delays in gaining access to services, or if their clients run in bureaucratic circles without making progress. Long backlogs and waitlists mean that the sick and poor are not getting care they are legally entitled to—and our tax dollars aren’t being spent in the way they are intended.

  • Ask the local agency responsible for overseeing public benefits—usually some variation on Health and Human Services—how many people get benefits in a specific program; how long it takes a new client to receive them; and how many clients lose them each month. If it’s a new contract, ask for those rates before and after the contract went into effect.
  • For Medicaid programs, check in with nursing home directors and social workers, or organizations working with the mentally ill and homeless. See how well things are going under the private contractor, and if they’ve noticed any patterns in how well—or how poorly—the system works.
  • For SNAP, WIC and cash assistance, ask advocates for the poor and working poor—or even caseworkers at local offices—what they are seeing with their clients. How long are waitlists for programs? How long does it take the state to process enrollment in a program, and how does that compare to the contract’s requirements?
  1. Look For: Incentives to Deny Benefits

Two useful things to use in assessing contractors’ work is how they get paid, and how they perform.

Many social service contracts have payment structures that are “performance based,” i.e. contractors are paid based on the volume of work measured, for example, by the amount of paperwork completed; by the number of clients contacted; or by a reduction in caseload. You can often find these spelled out in spreadsheet-like charts in project proposals or contracts (See: “Anatomy of a Contract,” below.)

Work requirements for cash assistance (known as “welfare-to-work”)  became notorious in the 1990s for relying on incentives that boost profit more than helping clients. Contracts in the 1990s and early 2000’s often paid contractors for reduction in caseload—but a reduction in caseload only means that the state is closing cases, not whether people no longer need help. To address this, agencies began to pay for the various steps of the job placement process, but this has led to contemporary contracts frontloading payments. In a $36 million job placement and work readiness contract with Maximus running from 2017 to 2021, Indiana budgeted a third of it to run orientations for more than 18,000 clients per year. But it only expected Maximus to find 199 of those people jobs that last six months or more; by Type’s calculations, less than 1 percent of the contract was paid out for reaching that milestone.

Performance metrics are different; these are the guidelines set out for how the company should be doing its work. In an Indiana enrollment brokerage contract, for example, the contract indicated that each call should be “resolved” but there is no further detail offered—and a spokesperson said the state is satisfied if Maximus makes a proper referral elsewhere, regardless of the outcome.

How to Find It:

Go through the contract and look through anything that resembles a spreadsheet—this is usually where cost structures live; the Indiana work services contract offers a good example. (For large PDFs, this is easiest if you use an application that allows you to look at multiple pages at once, allowing you to scroll through quickly.) They are often, but not always, submitted as attachments to the contract, and may be at the end of the document. If this fails you, search the document for key phrases such as “cost structure,” “compensation,”  “financials,” “payment,” or “exhibit.”

  1. Look for: Private Contractors Cost More

Private contractors like Maximus often persuade public officials that they can help run social services better, and more cheaply, than government. Yet this is not always true. In 2012, Illinois signed a $77 million contract with Maximus to purge its Medicaid rolls; the company claimed it saved the state more than $200 million a year. But state workers, represented by AFSCME, said they could have done the same work, and saved the state the same money—for $18 million less. What’s more, Maximus’ work on the contract was so poor that officials withheld payment; subsequently, for other reasons, an independent arbiter ordered the contract be canceled.

How to Find It:

If contracting out public benefits work is new to your state, ask the state how much the same work cost it to do in-house. If this is not readily available, reach out to the local public employees’ union—AFSCME—whose members would likely complete the work when it was handled by government, and ask them what it would cost.

  1. Look for: Work Requirements Cost More

Tracking work requirements takes a lot of new paperwork—and that means paying for new systems to execute it. Yet, even as the Centers for Medicare and Medicaid Services have embraced work requirements, the agency never required states to price out the cost of adding them. This leaves both states and the federal government facing an unknown tab so great that Sen. Ron Wyden (D-OR) and Rep. Pallone (D-NJ) in 2018 asked the Government Accountability Office to study administrative costs.           

How to Find It:

In states where work requirements are added on to an existing contract, as in Michigan, the cost of work requirements is clear. (There, the baseline cost is set at $105 million for three years, ratcheting up the company’s revenues there by nearly 23 percent.) Just get a copy of the contract amendment and what it costs. Provided it exclusively covers work requirements, you’re set.

If your state signs a new contract for broad enrollment services that includes work requirements on top of other responsibilities, you can do two things. First, you can compare the per-enrollee cost of the new contract to its predecessor. Second, you can go through the cost structure and see if the contract has line items for work requirement-related tasks. Either way, if you get stuck, try reaching out to contracting experts like Carolyn Heinrich, below, who can help interpret the contract.

  1. Look For: Conflicts of interest

Like all corporations, Maximus employs lobbyists at the state and federal level to advocate for its interests, whether they are related to broad policies or specific contracting opportunities. See how much they’ve spent in your state—or on federal issues of interest to your state’s Senators and Congresspeople. In lobbying records, Maximus and its subsidiaries will be called the “principal” or “client.”

How to Find It:

ProPublica maintains a good, up-to-date database of federal lobbying records; this can help illustrate which policies Maximus has been working on at the national level. For instance, in early  2019, M.J. Simon & Company, LLC began reporting they’d lobbied to allow private contractors to determine eligibility for public benefits on behalf of Maximus (and another organization, Capitol Bridge, LLC). The same firm has been lobbying on Maximus’ behalf since 2007—but this push to allow private, for-profit contractors to decide who gets help beyond cash assistance, and who does not, is new. If those efforts succeed, it would undo an often-overlooked nuance of 1996’s welfare reform: That, broadly speaking, determining whether someone deserves medical help or food assistance is a public responsibility, not a private, for-profit one.

State requirements to report lobbying vary. (If you can’t figure out your state’s lobbying office, it’s worth checking the National Congress of State Legislatures’ website, which keeps track of each state’s rules.) Some states require lobbyists to make quarterly reports, giving you a sense of when, during a year, companies are most active in the statehouse. If you’re looking through old contracts, compare their signing dates with lobbying records—was a company spending money to influence politicians in the months before they signed a contract? And whenever your state has social services contracts coming up for renewal, or launches new rules for Medicaid, welfare or food assistance, lobbying records can tell you if a company has recently been active.

  1. Profits determining care

Journalism has yet to yield documentation showing that for-profit companies are pursuing policies known to be harmful in order to maximize profit. If that is happening, proving it would likely require documentation from whistleblowers within Maximus or government.

 

RESOURCE: Anatomy Of a Contract

If you’re examining a contract, finding the following things will help you get oriented:

WHO

  • Which local agency oversees the program, and which division and bureaucrat is responsible for it?
  • Are there subcontractors? If so, what do they do, and what is their reputation?
    • Most contracts contain boilerplate provisions governing subcontractor responsibilities; these won’t be very useful. But if the contract names subcontractors, like this one in Indiana, looking up the companies gives you potential sources who might have insight into how the contract works.

WHAT

  • Which federal program funds the contract?
    • For prime, or initial, contracts, the federal program is usually clearly named, as it is here in the Indiana work program contract. If you’re working with a contract amendment that doesn’t mention a specific federal program (try searching the PDF for the big ones; Medicaid, TANF, WIC), you’ll likely have to get a copy of the original contract to which the amendment is related.
  • What is its political goal?
    • You can understand the political goal by reading speeches of politicians or paying attention to the public statements of bureaucrats; a November 2017 speech from Centers for Medicare and Medicaid Services director Seema Verma, touting the power of Medicaid work requirements to “break the chains of poverty” is a good example. If leaders have spoken about cost-effectiveness or the importance of caseload reduction, report out whether the contracts are achieving those goals—and at what cost, material or human.
  • What is the company supposed to be doing?
  • How is the company’s performance being tracked?
    • Contract performance measures are where the real intent of the contract lies; these are the incentives that determine contractor behavior. For example, contracts covering call centers that help run enrollment for Medicaid or work requirements will set out the expected number of calls, the length of calls, and the number of clients they expect to hang up on—or, in contract lingo, “abandon’—calls to the helpline.They’ll also set prices for each task; some will be flat-fee, others will be based on volume.
  • What happens if the contractor fails?
    • If it looks like contract is going badly, it’s important to check contract provisions to see what the state’s options may be: Can they stop payment? Can they get money back? What rights does the contractor have?
    • Consider how much expertise and staff the state will maintain in-house after they hire a contractor. In Kansas, even after significant reports of problems arose with the Maximus contract, the state continued to work with Maximus—and paid them more. That’s because the state no longer had sufficient staff to do the tasks it had hired Maximus to do. When the contract faltered, firing Maximus would have meant a complete halt to the program.

WHEN

  • When was the contract signed, when did it take effect, and when does it end? When was a request for proposals posted, and when were proposals submitted?
    • Contract signing, start, and end dates are basics you need to understand a contract. But if you suspect there may be a story tied to lobbying efforts, compare the RFP posting date and proposal submission date with the company’s lobbying records and see if the dates line up.
  • Are there renewal options?
    • Many large government contracts come with automatic renewal options that extend the contract without requiring government to re-bid it. These are great times to look into performance numbers on contracts: As a contract comes up for renewal, how well is the company serving program clients? Because extensions require far less work than new contracts, governments have a strong incentive to agree to them, even when a company might be underperforming. If a contract is renewed, is there any reason to be concerned about sticking with the same company? And if it’s not, it’s worth knowing why.

RESOURCE: National experts

Here are some of the leading experts on the monetized safety net and private government contracting. They are all open to working with journalists: 

Daniel Hatcher, Professor of Law, University of Baltimore Law School

An expert in privatized social services and author of the 2016 book, The Poverty Industry, Hatcher has followed Maximus’ work closely, but not exclusively. He has highlighted stories of Maximus manipulating bureaucracy to extract social security payments for foster children and then refusing to release money to the children, as well as the company’s efforts to lead state efforts to maximize federal payments while also being hired by the federal government to minimize payouts.

dhatcher@ubalt.edu

Carolyn Heinrich, Professor of Public Policy, Education, and Economics, Vanderbilt University

Dr. Heinrich is a leading scholar on social policy and contracting, and is particularly adept at analyzing contract incentives, as well as assessing performance vs. goals in a contract setting. She served as an expert witness in  State of Indiana v. IBM, a 2016 case involving the state’s botched outsourcing of its social program tech infrastructure to the company.

carolyn.j.heinrich@vanderbilt.edu

Shahrzad Habibi, Research and Policy Director, In The Public Interest

Part of a research and policy center dedicated to transparency and accountability in government contracting, Habibi is the in-house expert on social services contracting. Based in Texas, she has a national expertise.

shabibi@inthepublicinterest.org

Stay in touch!

If you end up reporting on the monetized safety net in your community, let us know! We’re eager to hear more about how the reporting goes. queries@typeinvestigations.org.

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About the reporter

Tracie McMillan

Tracie McMillan

A working-class transplant from rural Michigan, Brooklyn- and Detroit-based writer Tracie McMillan has been covering America’s multiracial working class since the late 1990s.

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