Critics: Failed Indiana-IBM Deal Can Warn Others

Indiana said it was going to get outsourcing right when it turned welfare eligibility services over to a private contractor in 2007. Now critics say the failed move is the latest warning that states should not allow for-profit companies to run social services.

The ambitious, $1.34 billion effort to automate applications for food stamps, Medicaid and other welfare benefits was being closely watched after states such as Texas had problems when they tried similar plans.

Indiana fired IBM Corp. as the lead contractor on the project Thursday over problems including lost documents, delays in benefit approvals and poor service.

"Other states should beware," said Jim Wallihan, an advocate for senior citizens in Indiana. "Indiana's been a good demonstration, along with Texas, that there's some variables involved that just don't take well to privatization."

From the beginning, officials said Indiana had learned from the experiences of other states and was confident it had a better approach. But its contract with IBM quickly led to a long list of complaints.

Gov. Mitch Daniels, a privatization supporter who leased the Indiana Toll Road and proposed outsourcing the Hoosier Lottery, said IBM didn't make enough progress to fix poor service. Indiana will retain other private contractors as it works to create a new hybrid welfare eligibility system.

IBM has said it believed it was making progress and that high unemployment led to more demands on the welfare system, making the changes more difficult.

Daniels said the decision to cut ties with IBM is a reflection on the company's specific plan, not of the merits of privatization.

"It has nothing to do with private or public," Daniels said Thursday. "It had to do with a concept. If you've had tried to use the same concept IBM brought, and every worker was a state worker, you'd have had exactly the same results, or worse."

Both Indiana and Texas — where thousands of children lost health insurance because of problems from an outsourcing experiment that ended in 2007 — learned a costly lesson, said Celia Hagert, a senior policy analyst at the Center for Public Policy Priorities in Texas.