The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

Most of us scream on carnival rides and enjoy seasonal treats during the summer without thinking about the laborers who make these activities possible. Many of these workers travel long distances at considerable expense to take low-paying, dangerous jobs. These seasonal workers are employed through the H-2B visa program, which is ripe for change.

Under the terms of the H-2B program, U.S. employers petition for seasonal nonagricultural workers to work here on a temporary basis. (The H-2A program works in the same general way for seasonal agricultural workers.) Getting approved to host an H-2B worker is difficult, and three separate federal agencies are involved in the application and visa issuance process.

You might think that, in light of the rigorous process used to approve H-2B workers, there would be strong safeguards in place to protect the workers from exploitation once they arrive in the United States. You would be wrong. As an initial matter, under existing law H-2B workers are not even guaranteed a minimum number of work hours under their employment agreements—unlike H-2A agricultural workers, who are required to receive hours equivalent to three-fourths of the work days specified in their employment contracts.

Moreover, because there are multiple federal agencies involved in the H-2B program, it is incredibly difficult for workers to determine how to pursue an employment-related question or complaint. And, because H-2B workers apply to work in this country for a particular employer and cannot change employers once in the United States, they often feel compelled to continue working for employers who confiscate their passports, make them live in unsanitary housing, subject them to verbal abuse, and otherwise exploit and degrade them. 

Even if H-2B workers are inclined to seek legal help, organizations that receive Legal Services Corporation funding are not permitted to assist them. Thankfully, other organizations and the federal government do step in.  Earlier this year, several H-2B carnival workers from Mexico were awarded thousands of dollars following a Department of Labor investigation sparked by activists concerned about the condition of New York State Fair workers.

Fortunately, the federal government has decided to revamp the guest worker program and make it more just for seasonal workers. In March 2011, the U.S. Department of Labor proposed revisions of the regulations governing H-2B workers. The proposed revisions are significantly more protective of workers’ rights than the current regime. 

In addition, U.S. Senators Robert Menendez (D-NJ), Harry Reid (D-NV), Patrick Leahy (D-VT), Dick Durbin (D-IL), Chuck Schumer (D-NY), John Kerry (D-MA), and Kirsten Gillibrand (D-NY) recently launched the Comprehensive Immigration Reform Act of 2011. This wide-ranging bill contains provisions addressing border security, work authorization, and paths to legal immigration—including an attempt to revive the DREAM Act. Several provisions in the bill would affect guest workers. This legislation currently has no Republican support, but it is encouraging to see lawmakers trying to coalesce around a reform plan. 

The fate of the Comprehensive Immigration Reform Act probably will not be decided anytime soon, but hopefully the Labor Department’s revisions to the H-2B regulations will be adopted quickly and some of the structural flaws in the H-2B program will be remedied.

• Email This
• Print
• Comments
• Trackbacks

On June 17, Dr. Karin Rhodes and her colleague Joanna Bisgaier of the University of Pennsylvania released a report on access to subspecialty doctors by children covered by Medicaid in Cook County, Illinois. The authors also published an article about the study underlying the report in the New England Journal of Medicine . 

Dr. Rhodes undertook and was paid for the study pursuant to a contract with the Illinois Department of Healthcare and Family Services, the state’s Medicaid agency. The study was part of the department’s compliance with a 2005 consent decree in the case of Memisovski v. Maram, which followed a 2004 federal district court ruling that the state was not in compliance with Medicaid Act requirements that children receive recommended levels of preventive care and treatment of diagnosed conditions, and that they receive care at least to the same extent as children covered by other forms of insurance. 

Following the consent decree in Memisovski, Illiniois has undertaken very significant reforms of the primary and preventive care system for children on Medicaid. It improved the rates paid for office visits to primary care doctors and dentists, and it held the processing time for those services to a reasonable level, even during the recession (when all other state bills were being delayed for many months). It launched a statewide “medical home” initiative designed to match children up with primary care doctors, which has had considerable success. Other strategies to improve primary care have been launched, and the overall effort continues.

The consent decree was less specific with respect to access to specialty care to diagnose conditions or especially to treat diagnosed conditions. It provided that the department undertake a study to examine the extent of access problems, and it left the remedies for any such problems to be determined after the study was completed. However, Illinois was not idle on this front. It enacted a round of rate increases for some pediatric specialists, and it included children in a disease management program for people with chronic illness. 

The study released last Friday, however, shows that there is a very serious problem with access to specialty care for children covered by Medicaid and other public insurance, particularly as compared to children covered by other forms of insurance (mostly employer-based private insurance). Using a “secret shopper” methodology, the investigators posed as parents seeking care for a child, saying in one call that the child’s coverage was Medicaid and in the next call that the same child’s coverage was Blue Cross Blue Shield PPO (which dominates the market in Illinois). The Medicaid-covered children had very significant disadvantages for almost all sub-specialties in both the ability to get an appointment and in the waiting time for the appointment if it was granted. The one exception was psychiatric care, where there was a severe access problem regardless of type of insurance. 

At the time of the original court order and consent decree, Illinois authorities were dealing with an inherited problem resulting from decades of underfunding and neglect of access issues in the state’s Medicaid program. They have been working to comply with the decree and improve the program, in spite of the grinding recession-driven budget crisis in the state. Representatives of the children in the case look forward to working in cooperation with state authorities to find and implement solutions to these newly documented problems with specialty access. 

Meanwhile, the study has resulted in media coverage, and some commentators are attempting to use it to bolster current attempts by conservatives to cut spending on Medicaid or relieve states of the duty to comply with Medicaid’s federal rules guaranteeing children access to all needed care. Medicaid is not “broke”; it is underfunded. The underfunding causes it to fall short on its ability to deliver the kinds of quality health care that, over the long term, would save money by supporting healthier people. And Medicaid is not “broken”; it is falling short of its full potential. It provides plenty of essential health care to millions of children, working adults, people with disabilities and seniors. Cutting them off of Medicaid would hurt them immeasurably. And starving the program of funds would only exacerbate the problems with access and the efforts to expand the health care workforce needed to provide adequate care to all beneficiaries. Just because there are flaws in the program does not mean the program must end for millions of beneficiaries. If we scrapped every governmental program that has flaws that need fixing, where would the armed forces, roads, or schools be? Medicaid is essential, but it can and should improve, especially on this issue of access to needed care.   

• Email This
• Print
• Comments
• Trackbacks

As of April 2011, the savings rate in the U.S. was only 4.9%. Moreover, a 2009 Federal Deposit Insurance Corporation (FDIC) survey revealed that approximately 30 million American households are either unbanked or underbanked. “Unbanked” households are those without a checking or savings account, and “underbanked” households are those that have a checking or savings account but rely on alternative financial services. The unbanked and the underbanked are particularly vulnerable to predatory practices by non-bank check-cashing services, payday loans, rent-to-own agreements, and pawn shops. Given the current economic climate, it is more important than ever for policy makers to concentrate their efforts on getting more people “banked” and saving.

One interesting proposal getting more people, particularly low-income consumers, saving are prize linked savings accounts. These accounts are bank accounts that allow savers to win cash prizes in proportion to how much they save. It is akin to buying a lottery ticket, except that one will always get back the money one has saved.

As some supporters of these types of accounts explain, if gamblers and lottery spenders allocated their funds to prize-linked savings instead, it would lead to increased aggregate savings. In 2007, U.S. residents spent around $90 billion on legalized forms of gambling. The appeal of participating in a lottery suggests that providing an incentive similar to lottery may be an effective tool to recruit more savers. Researchers including Peter Tufano of the Harvard Business School have shown that this program could work in the U.S. Tufano’s research in Indiana predicted that the unbanked would have the greatest interest in prize-linked savings. Following the study in Indiana, Tufano and his team at D2D Fund launched a larger scale prize-linked savings project in 2008 with the Michigan Credit Union League and the Filene Research Institute in Michigan. The product named “Save to Win” allowed savers the opportunity to win monthly cash prizes or a $100,000 grand prize at the end of a year for every $25 deposited. At the end of the pilot year, over 11,500 savers had saved over $8.5 million in Save to Win accounts.

While prize-linked saving programs are available in over twenty countries around the world, including the U.K., Sweden, and South Africa, they are not widely available in the U.S. due to state law and federal regulations. Current law in Michigan, Alaska, Georgia, and Arizona allow for savings promotion raffles, but options are limited in other states. That is because most states in the U.S. prohibit privately run lotteries, and prize-linked savings is considered illegal under such provision. In order to test this new idea to promote saving, Rhode Island, Maine, Maryland, Nebraska, Washington, and North Carolina have passed legislation to enable prize-linked savings programs. Although unsuccessful, legislators in Arkansas, Mississippi, Iowa, and New Mexico have also made similar attempts. However, federal law prohibiting non-credit unions from operating a prize-linked raffle complicates the legislative campaigns in various states.

Even though prize-linked savings may raise aggregate savings among low-to-moderate income families, they do not solve the problem of getting more people to use mainstream bank services that provide more protection for their funds. Moreover, we must keep in mind that one innovative idea alone will not solve the chronic problems of the U.S. economy.

• Email This
• Print
• Comments (1)
• Trackbacks

The Shriver Center has previously reported on federal and state efforts to crack down on the rapidly growing debt settlement industry, particularly the industry’s pervasive practice of taking advantage of desperate consumers’ fears and financial troubles. 

Last year, the Federal Trade Commission (FTC) established the Telemarketing Sales Rule which bans advance fees, requires disclosures, and prohibits misrepresentations by debt settlement companies. Since October 2010, for-profit companies that sell debt relief services over the telephone may not charge a fee before they settle or reduce a customer’s credit card or other unsecured debt. Companies must disclose fundamental aspects of their services, such as how long it will take for consumers to see results, how much it will cost and the potential negative consequences from using debt relief services, before the consumer signs up for any service.  The rule also covers calls consumers make to these firms in response to debt relief advertising.

Most recently, the FTC settled two actions charging debt settlement companies with fraudulent practices including deceptive telemarketing calls, calling consumers on the Do Not Call Registry and using illegal robocalls.

In the first case, the FTC charged Advanced Management Services NW LLC for calling consumers and claiming that they could negotiate with credit card issuers to substantially lower the consumers’ credit card interest rates. The defendants allegedly used prerecorded “robocalls” with messages urging consumers to “press one” to speak with someone, falsely leading many consumers to believe that the calls came from the credit card company. They also charged consumers up to $1,590 and promised a refund if they failed to save at least $2,500 in interest savings.  Instead of arranging for interest rate reductions, the companies merely advised consumers to pay down their credit card debts early to save money on interest. When refunds were requested, the companies either denied the requests or deducted a $199 “nonrefundable fee” from the refund.

The US District Court for the Eastern District of Washington’s settlement order against Advanced Management Services imposes an 8.1 million dollar judgment and prohibits them from engaging in marketing, advertising, promoting, offering for sale, or selling debt relief services. They are also banned from misrepresenting facts about any good or service, selling or using customers’ personal information. These monetary judgments, which represent the total amount consumers lost, will be suspended when the defendants surrender virtually all of their assets.

In another case, the FTC charged Dynamic Financial Group and other defendants with making false claims by offering debt relief services with an up-front fee of up to $1,995. The defendants claimed to help consumers pay off their debts faster and promised a full refund if a consumer did not save a “guaranteed” amount. 

The settlement order from the US District Court for the Northern District of Illinois Easter Division prohibits the defendants from misrepresenting material facts about any good or service, violating the Telemarketing Sales Rule, collecting payments from their debt relief consumers and using or selling customers’ information. In terms of monetary damages, the defendants must pay over 30 million dollars.

While the FTC Telemarketing Sales Rule increased regulation over debt settlement services marketing, it only covers calls consumers make to debt relief firms in response to their advertising. It does not, unfortunately, cover in-person or internet-only sales of debt settlement services. More federal measures are therefore necessary. For example, the Federal government could follow states’, such as Illinois’, examples and require written contracts prior to a debt settlement company receiving a fee. Illinois’ debt settlement law requires a written contract that clearly indicates the terms of the debt settlement agreement and that must be signed by both the service provider and the customer. Most importantly, it caps the initial fee to $50 and forbids debt settlement companies from unfairly charging customers without having done any work. The settlement fee is capped at 15% of the savings and cannot be charged until the creditor has entered into a legally enforceable agreement with the consumer. Also, debt settlement service providers must warn consumers that debt settlement service is not suited for everyone and that it may have detrimental effects on the consumer’s credit history and credit score. Companies must provide detailed accounting reports, and consumers are entitled to cancel the contract and receive a refund.

 This blog post was coauthored by Ji Won Kim.

• Email This
• Print
• Comments
• Trackbacks

The financial meltdown has led many people to rely on unemployment compensation (UC) more than ever. Only 54,000 jobs were created in May, and the unemployment rate remains high at 9.1%. In this volatile market, it is becoming increasingly important for the government to protect consumers who were hit hardest by the economic crisis – the unemployed.

Forty states including Illinois, California and New York have transitioned paying UC from paper checks to prepaid cards. A prepaid card is a network branded – VISA or MasterCard – card that can be used like a bank debit card without the individual bank account. Delivering UC benefits on prepaid cards allows: (a) state government agencies to eliminate the costs of issuing paper checks; and (b) recipients, who may prefer not to have their employment payments deposited to a bank account because of the problems with overdraft fees, garnishment by debt collectors among others.

While using these sorts of prepaid card systems may offer some benefits, effective consumer protection measures must be implemented to ensure that vulnerable unemployed individuals are protected. In particular, pre-paid card fees and other charges can quickly reduce the amount of UC payments. A study by the National Consumer Law Center (NCLC), found that the typical UC check is only $294 a week. This means that it is crucial for recipients to save every dollar and penny by avoiding unnecessary fees.

The U.S. Department of Labor (DOL) has issued guidance for UC cards which states that money drawn from the federal unemployment fund may not be used to cover a state’s administrative costs related to the payment of UC. 

Yet many UC card systems charge multiple fees, presumably to help defray the state’s administrative costs, in contravention of the DOL’s guidance.  Out of the forty UC prepaid cards currently offered by states:

• 22 cards charge fees at network automated teller machines (ATMs), and all charge out-of-network ATMs, on top of ATM surcharges;
• 24 cards charge ATM balance inquiry fees;
• 24 cards charge denied transaction fees;
• 5 cards charge $10 to $20 overdraft fees;
• 16 cards charge for calls to automated customer service menus; and
• 28 cards charge inactivity fees.

States need to eliminate or reduce these fees. Additionally, every state should offer direct deposit and checks, in case of hardship, as well as prepaid cards in order to allow consumers to choose their preferred method of payment and the types of associated fees that they wish to incur. Currently, only 3 states, Alaska, Florida and West Virginia, offer all three payment options. Perhaps most importantly, states must clearly disclose the fees associated with UC cards on their websites. Addressing these concerns will create a UC prepaid card system that benefits both a state and its unemployed workers.

Ji Won Kim coauthored this article.

• Email This
• Print
• Comments
• Trackbacks

Children with mental health problems are often treated like troublemakers at school. Without the budgetary resources to train teachers and staff about mental illness, schools frequently punish or suspend children with mental health problems – never stopping to consider whether their problematic behaviors are symptoms of mental illness rather than simple acting out. Thankfully, more and more legal services providers are creating medical-legal partnerships dedicated to representing children with mental health problems who need assistance to obtain appropriate educational services.

Lucas Caldwell-McMillan, an attorney at Legal Services of Eastern Missouri, manages one such medical-legal partnership, the St. Louis Children’s Health Advocacy Project. Caldwell-McMillan recounts the collaborative effort that was necessary to obtain the appropriate medical and educational services for two St. Louis kindergarten students in the current issue of Clearinghouse Review. The Individuals with Disabilities Education Act requires school districts to follow a carefully delineated set of procedures when students exhibit symptoms of mental illness or their parents request special education evaluations. Caldwell-McMillan’s clients were repeatedly suspended because of behavioral problems. The school district refused to provide the students with special education evaluations even though their parents requested the evaluations and the students were receiving mental health services outside of their schools. Through the efforts of Caldwell-McMillan and his colleagues—both at Legal Services of Eastern Missouri and Grace Hill Murphy-O’Fallon Health Center, where the students were diagnosed with attention deficit hyperactivity disorder and other mental health disorders—the school district agreed to conduct special education evaluations for both boys as well as intensive behavior management and tutoring services.

The St. Louis Children’s Health Advocacy Project is not alone in its approach. Legal Services of Greater Miami also participates in a Children’s Health Advocacy Project with South Miami Children’s Clinic. Kevin Probst, an Equal Justice Works Fellow at the Miami Children’s Health Advocacy Project, is currently representing an honor roll student with a history of panic attacks and anxiety whose grades declined after she was bullied at school. The school did not protect the student from the bully; instead, the school removed the student from a magnet program due to her declining grades—causing the student’s mental health to deteriorate even further. After unsuccessfully representing the student before her school district, Probst is now filing a due process complaint for her.

The St. Louis Children’s Health Advocacy Project and the Miami Children’s Health Advocacy Project are both part of a network of medical-legal partnerships coordinated by the National Center for Medical-Legal Partnership. The Partnership’s roots reach back to 1993 and the Medical-Legal Partnership for Children at Boston Medical Center, which worked to prevent low-income sick children from becoming sicker because of inadequate nutrition, utility shut-offs, and mold. Today, the National Center for Medical-Legal Partnership provides support for medical-legal partnerships across the country. The story of the National Center for Medical-Legal Partnership’s founding emphasizes that children have always been an important part of the medical-legal partnership movement.

The July-August issue of Clearinghouse Review will feature Medical-Legal Partnership: Evolution or Revolution?, written by authors who are intimately familiar with medical-legal partnerships and the National Center for Medical Legal Partnership: Pamela Tames, Colleen Cotter, Suzette Melendez, Steve Scudder and Jeffrey Colvin. This comprehensive look at the past, present, and future of medical-legal partnerships confirms that they can provide cost-effective assistance for clients of any age.

• Email This
• Print
• Comments
• Trackbacks

Electronic transfers have increasingly become the preferred method for administering financial services and products, including public benefits. Families who are eligible for public assistance can choose to have their monthly payments deposited directly into a bank account via Electronic Benefit Transfer (EBT). EBT systems have some advantages over traditional check payments because of reduced chances for theft or fraud, quicker availability of funds and the ability to avoid costly check cashing services. Despite the many advantages of EBT systems, there are disadvantages, including the vulnerability of these funds to garnishment as a result of debt collection.

Federal law prohibits creditors from seizing federal assistance payments for programs such as Social Security, Supplemental Income (SSI) and veterans benefits. These laws exist to protect the low-income individuals who desperately need this assistance, however, the unfortunate reality is that banks typically freeze any account for which they receive a garnishment order, even if the account contains funds from Social Security or SSI payments. As a result, many people are left without the ability to access the money they need to provide for basic necessities like food and shelter.

New federal regulations, which became effective May 1^st, will ensure that banks comply with these existing anti-garnishment laws. Under these regulations banks are now required to determine whether or not public assistance funds have been deposited into a beneficiary’s account and, if so, make sure that the account holder has access to those funds. Specifically, after receiving a garnishment order a bank must analyze the account and determine if any exempt funds had been deposited during the previous two months (i.e., a “look-back” period). If so, the bank is required to ensure that the account holder has “full and customary” access to the amount deemed exempt from collection.

Most of the people affected by the new regulations are surviving on minimal income, so it is essential that they be able to access whatever assistance they currently receive. The primary beneficiaries of the federal assistance programs that prohibit garnishment are senior citizens, retired federal employees, veterans, and individuals with disabilities. The new regulation does not cover state benefits such as unemployment insurance or Temporary Assistance for Needy Families (TANF).

The new garnishment regulations are a huge step in the right direction, but they could be strengthened to ensure the greatest protection for individuals by:

•  Defining the “look-back” period as a full sixty-five days instead of two months to account for months with different lengths and holidays;
• Clarifying the meaning of “full and customary” and explicitly stating that accounts with garnishment orders and exempt funds cannot be closed;
• Further protecting account holders from any bank fees triggered by a garnishment order; and
• Protecting funds in special purpose saving accounts such as 529 plans and Individual Development Accounts.

Another option to protect exempt assistance funds from garnishment would be for beneficiaries to participate in an electronic payment card (EPC) system. Different from EBT, EPC systems deposit funds into an account that beneficiaries can access with a branded plastic card. The accounts are not administered by a bank and therefore cannot be frozen for debt collection. Recipients of federal benefits can participate in an EPC program by having their assistance payments loaded on a Direct Express card. This card is branded with a MasterCard logo and can be used in the same ways any debit card could be used, including paying bills online. While the DirectExpress card is a safe, government sponsored card, other EPC systems do raise consumer protection concerns since the cards are not given some of the same legal protections as traditional credit cards. Consumer advocates and legislators alike are pushing for stronger safeguards to make sure that such cards are given full protections as well as ensuring that there are adequate disclosures and no excessive fees.

We applaud the efforts of the participating federal agencies in prioritizing the needs of low-income, elderly and disabled public assistance beneficiaries.

For more information on the EBT and EPC systems please visit The Next Frontier in Public Benefits: Electronic Payment Cards. On this page you will find many resources related to the electronic distribution of public benefits, including a webinar on the topic presented by the Shriver Center. Additional analysis of this topic can be found in the 2011 May/June issue of the Clearinghouse Review.

Kelly Ward coauthored this blog post.

• Email This
• Print
• Comments
• Trackbacks

Congressman Tom Petri (R-WI) and Congresswoman Niki Tsongas (D-MA) introduced a bill that would reform asset limit tests in the Supplemental Security Income (SSI) program on June 2. HR 2103 would enable people with disabilities to open bank accounts, work, and save.

One of the most common policy barriers to asset building and self-sufficiency for people with disabilities are asset limit tests. In general, eligibility for SSI is limited to those who have no more than $2,000 in assets for an individual and $3,000 for a couple. This SSI asset test generally counts all resources deemed accessible to an individual, including defined-contribution retirement accounts, such as 401(k)s and IRAs.

Such asset limits are painfully low, and haven’t been raised since 1989. SSI beneficiaries are allowed little emergency savings, which leaves them vulnerable to predatory lenders and requires them to ultimately rely on greater government assistance. To address this situation the SSI Savers Act of 2011 would:

• Increase asset limits from $2,000 (single) and $3,000 (married) to $5,000 and $7,500 respectively, and index those limits to inflation;

• For recipients younger than 65, exclude retirement accounts, education savings, and individual development accounts from counting against the limit; and

• For recipients 65 and older, allow retirement accounts up to $50,000 (single) and $75,000 (married) and reduce SSI benefits accordingly instead of creating an immediate cut off.

The bill is similar to HR 4937 introduced last session by Representatives Petri and Tsongas.

Click here to take action and send a message to your legislators urging them to support SSI asset limit reform, then follow-up with a call. The switchboard's number is 202.224.3121. The operator can connect you to your legislator's office.

For more information on asset building for people with disabilities, please visit the Sargent Shriver National Center on Poverty Law’s web resource pages to review our webinar series on asset building for people with disabilities: Accessible Assets, Part 1 (November 2009) and Accessible Assets, Part 2 (February 2011).

This blog post was coauthored by Ji Won Kim.

• Email This
• Print
• Comments
• Trackbacks

The Federal Deposit Insurance Corporation (FDIC) continues its campaign against refund anticipation loans (RALs). The agency recently took action against Republic Bank & Trust of Kentucky (Republic) for violating numerous consumer protection laws. Republic, which is the last RAL lender in the country, partners with Liberty Tax and Jackson Hewitt to provide the short-term, high interest loans.

In the midst of the 2011 tax season, FDIC examiners visited 250 tax preparation sites offering Republic backed RALS in 36 different states and found almost half of preparers to be in violation of at least three different consumer protection laws. According to the FDIC, Republic has violated the Truth-in-Lending Act, Gramm-Leach Bliley Act, Federal Trade Commission Act and the Equal Credit Opportunity Act. Specifically the investigation revealed that Republic failed to meet basic lending standards such as properly disclosing the terms of loans and having safeguards in place to protect consumers’ confidential information. Additionally, Republic is being charged with engaging in deceptive and discriminatory practices.

These charges, along with a fine of $2 million in civil penalties, comes after a previous cease and desist order that was filed against Republic by the FDIC earlier this year. This order was filed because the FDIC found RALs to be unsafe and unsound given the Internal Revenue Service’s elimination of the Debt Indicator, a tool lenders used to estimate whether or not a tax filer would receive a refund or have their returns directed toward outstanding debt.

RALs are very profitable for lenders, so Republic is sure to put up a fight. It is our hope that this latest action by the FDIC will be the final nail in the coffin of refund anticipation loans and eliminate these predatory products altogether.

To read more about RALs visit the Shriver Center’s blog, the Shriver Brief.

This blog post was coauthored by Kelly Ward.

• Email This
• Print
• Comments
• Trackbacks

As states privatize portions of their public benefits programs in an effort to save money, more and more Americans are getting lost in the shuffle. Recently in Indiana, a federal district court examined the privatization process in the context of one man’s application for Medicaid benefits. In Novak v. Indiana Family and Social Services, 1:10-cv-0677-RLY-DML, 2011 U.S. Dist. Lexis 34249 (S.D. Ind. March 30, 2011), the court found that private companies performing functions traditionally held by state governments can become state actors and thus be held responsible for losing or delaying citizens’ applications for benefits.

The Novak case began in October 2008 when a law firm representing Raymond Novak applied for Medicaid benefits on his behalf. Unfortunately for Mr. Novak and his wife, in December 2006 the State of Indiana had contracted with IBM to modernize the way Indiana’s Family and Social Services Administration (FSSA) processed Medicaid claims and applications. IBM quickly took over most of the Medicaid-related work in Indiana. 

As the Novak court wrote, “the effort to modernize resulted in significant delays and other problems that left the Medicaid benefits procurement process in Indiana with a backlog of unprocessed or incorrectly processed Medicaid applications.” In fact, although the contract was supposed to run for ten years, Indiana cancelled it after less than three because of IBM’s unsatisfactory performance. (The State of Indiana and IBM are currently embroiled in a highly publicized lawsuit regarding the state’s decision to terminate the contract.)

Mr. Novak and his wife, Rosemarie, were victims of IBM’s substandard performance. Not only did the service center responsible for Mr. Novak’s application lose it (and neglect to contact Mr. Novak’s lawyers to let them know the application had been lost), the center denied his application without providing any information about how to correct it. Mr. Novak’s lawyers appealed, and again the service center did not respond. Once again, the lawyers learned that the appeal had not been processed and that no hearing date had been set. The lawyers then sent Mr. Novak’s paperwork directly to FSSA’s appeals division. When an administrative law judge reviewed the case, although she denied Mr. Novak’s appeal, she explained her reasoning in detail so that Mr. Novak’s lawyers could correct the application.

Mr. Novak was later found eligible for Medicaid benefits, but the Novaks still sued FSSA and IBM, claiming not only that FSSA’s denial of benefits was unlawful, but asking for damages in a civil rights claim under 42 U.S.C. § 1983. The Novaks alleged that the FSSA’s application system was prejudicial to them because it delayed Mr. Novak’s eventual receipt of benefits and forced the couple to incur unnecessary legal fees.

While the court dismissed some of the Novaks’ claims, it allowed the section 1983 claim against IBM to stand. To bring a section 1983 claim against a defendant who is not a government official, the plaintiff must show that the defendant was a state actor. Analyzing the Novaks’ description of IBM’s actions, the court found that, because “the State entrusted to IBM its obligation to accept, promptly review and process a Medicaid application in accordance with the federal Medicaid statutes and regulations,” IBM was a state actor. This acknowledgment sends an important message to other states as well as to private contractors who consider entering into contracts to handle welfare work. After Novak, it is clear that corporations who contract with states to process Medicaid claims or other public benefits can be found responsible if they do not meet the requirements of federal law.

The Novaks’ situation is not an anomaly. Texas has also contracted out its eligibility determination for public benefits, and more and more states are considering privatization as a way to save money. Advocates agree that privatization of public benefits is fraught with peril for low-income clients. In a recent issue of Clearinghouse Review, Professor Wendy Bach of the University of Tennessee Law School asserted  that privatization not only makes it more difficult for applicants to receive benefits, privatization also reduces government accountability, making it difficult for community members and advocates to challenge inequities in the welfare system. The National Center for Law and Economic Justice notes that advocates for low-income people need “to ensure that privatization and modernization initiatives are implemented in an effective and accountable manner, guaranteeing low income individuals and families the benefits, services, and opportunities for which they are legally entitled and that they need to achieve economic independence.” In 2002, Clearinghouse Review’s annual special issue was devoted to privatization, and the Review will continue to follow this important topic in future issues.

• Email This
• Print
• Comments
• Trackbacks