Indiana Cancels $1.3 Billion Welfare Privatization Contract

INDIANAPOLIS -- Indiana Gov. Mitch Daniels announced Thursday that the state will cancel its $1.34 billion contract with IBM to automate the application process for food stamps, Medicaid and other benefits.

Daniels said the state will end its deal with Armonk, N.Y.-based IBM Corp., which had managed the welfare intake in 59 of Indiana's 92 counties and handle about one-third of the state's 1.2 million-person caseload.

Analysis: Capitol WatchBlog: Welfare Improvements Move Forward

Clients, their legislators and advocates had complained that the new modernization system, which took away in-person caseworkers, loses documents, misses telephone appointments and has lengthy hold times.

Daniels said he canceled the contract because IBM did not make satisfactory progress to improve services as required by a corrective action plan.

"The fraud appears to have been stopped and we’re still on track to save taxpayers hundreds of millions of dollars, but the intended service improvements have not been delivered, and that's not acceptable," Daniels said. "Those who raised concerns about service quality were correct, and we appreciate their efforts."

House Speaker Pat Bauer, D-South Bend, said that he hopes the decision will put a needed brake on the desires to privatize more government functions.

"It vindicates those of us who have raised serious questions about the viability of turning to the private sector to handle critical government functions," he said. "While it has taken nearly five years, it is good to see that the administration has finally learned how to fess up when it makes a mistake. I applaud the governor for doing what is right."

But IBM spokesman John Buscemi said his company regrets the decision and said that IBM was making progress to improve the system.

"IBM rejects the state’s claims and believes the state’s actions are unjustified," he told 6News. "Our efforts have significantly improved the Indiana welfare system to the benefit of recipients and all of the state."

Daniels said IBM’s contract will be terminated in 60 days, but that there would be a wind-down period to transition responsibilities. During the 60-day period, FSSA will develop a detailed implementation plan for a hybrid system that will incorporate successful elements of the old welfare delivery system, including more face-to-face contact.