Solicit Private Bids for Client Eligibility Determination Services

The Legislature should require health and human service agencies to bid against the private sector for client eligibility determination services.

Tough economic times and limited resources are forcing state agencies to seek new ways of doing business. Unlike the private sector, the state s delivery of social services typically is done in a non-competitive environment. The state essentially has a monopoly on these services.

One way to introduce competition into state activities is to identify opportunities for the private sector to compete with government agencies in pro viding services and determine whether contracting for these services will improve service delivery. The Health and Human Services Commission, the Department of Human Services and the Department of Health, in particular, should explore alternatives to tradi tional service delivery.

For example, the Los Angeles County Department of Public Social Services contracts out its Greater Avenues for Independence (GAIN) case-management program to a private firm for employment services. Their case managers receive bon uses for each client who completes six months of employment, which yields a 50 percent reduction in Aid to Familes with Dependent Children (AFDC) payments. 1 This incentive creates competition among workers to see that AFDC clients are successfully employed.

In 1987, the Texas Legislature recognized the importance of competition in government by enacting legislation requiring the review of commercially available services and the initiation of a private contract if services could be provided at the same qua lity for less money. This legislation, known as competitive cost review, requires many state agencies to evaluate their operations and compare their results to the costs of contracting for the same service. If an agency s costs exceed private sector rate s by 10 percent or more, the agency must contract for the service or modify its existing operation to bring its costs down to a competitive level. However, no agency has ever contracted out a service as a result of the competitive cost review process. A St ate Council on Competitive Government, recommended in another part of this report, would strengthen this process.

Agencies in other states and the federal government have opted to contract a number of health and human service programs to private firms. Typically, these are programs that have experienced significant growth in program administration and maintenance cost s due to growing demands from the recipient population.

Targeted areas include health care management, social services, assistance for the mentally ill, child support enforcement, and job training and placement services. In a recent survey, 19 states indicated they contract for many social services. Among the most common areas for privatization were health and mental health services, Medicaid , welfare and employment security. 2

One area is particularly primed for competition eligibility determination for health and human service programs, such as Medicaid, food stamps, AFDC assistance and other programs. Determination of eligibility benefits i s a process that lends itself well to contracting because the process is well-defined in state and federal rules and regulations and is a relatively routine activity. The amount of time needed to develop a determination generally is predictable and the pro cess can be guided in a step-by-step fashion.

In other states, models of contracting for this activity can be found in similar social service program areas. The states of Virginia, Tennessee and Arizona have privatized their child support enforcement and collection services. (See a separate recommendation in this area elsewhere in this report.) New York, Connecticut and Los Angeles County contract for case management of their welfare-to-work or Job Opportunities and Basic Skills (JOBS) programs. Many stat es, including Texas, Tennessee, Wyoming, Idaho, Louisiana, Maryland, Minnesota, North Carolina, South Carolina, New Hampshire, Ohio and Oregon, use the private sector to administer and manage parts of their Medicaid programs.

A. The Legislature should mandate that the Health and Human Services Commission solicit bids for Texas eligibility determination services for health and human services and require the Department of Human Services, Department of Health and other applicable agencies t o compete with private vendors for the delivery of this service by submitting a full-cost bid, including all administrative costs.

If the private sector can deliver the same service at a better cost without serious deterioration in employee benefits or working conditions, the activity should be contracted. Payment of this contract should be made from funds appropriated to the agency for eligibility services. Any difference between the winning bid and the agency s appropriation for these services, less contract supervision costs, should revert to the General Revenue Fund and other appropriate funds on the date of the contract.

State agencies would be exempt from the performance-bond requirement for bids, but would still be required to meet performance s pecifications. Failure to meet specifications would result in their loss of the contract. The State Council on Competitive Government, discussed in another part of this report, should oversee the implementation of this recommendation.

B. The Health and Human Services Commission should include specifications in the bid for an integrated eligibility determination process.

This will ensure that this recommendation complies with the Legislature s intent of developing an integrated eligibility determination p rocess. This process would enable agencies to determine client eligibility for several programs at one time instead of requiring clients to apply separately for each program.

C. The Legislature should direct the Health and Human Services Commission and other appropriate agencies to request waivers from the federal government to contract out the client eligibility determination function of health and human service programs.

States may apply for waivers to implement special pilot projects or demonstration projects in their states. To gain approval, states must prove that these projects are cost-neutral.

Competition can lower costs and improve service without affecting employee benefits or working conditions. Whether state health and human services agencies win the bid or not, the competition would require agencies to take a close look at their service pra ctices. If a private company won the bid, providing the service would still be the government s responsibility, and the Health and Human Services Commission would still monitor the private vendor s performance standards.

An integrated eligibility determination process would provide better service to program applicants, reduce caseworker time and frustration and lower administrative costs.

This recommendation should help ensure that services and activities are delivered in the most cost-effective manner possible without sacrificing quality.

Fiscal Impact
The fiscal implications of this recommendation cannot be estimated because it is imp ossible to predict how much could be saved by contracting out all or a portion of these services. If adopted, the recommendation could be expected to significantly reduce state costs in social service delivery. Other savings could be realized through elimi nating salary and benefit costs by decreasing state staff. Savings would accrue in general revenue, other state funds, federal funds and local funds. However, for any cost savings to be achieved, the federal government must grant the necessary waivers.

1 MAXIMUS, A Public-Private Partnership in Human Services (Washington, D.C.). (Brochure).
2 Memorandum from Jim Gilbert, President, Privatization Group, Coopers and Lybrand, to the Texas Performance Review, November 10, 1992.