This book does not support arguments to cut government aid programs. The fact that the poverty industry is misusing aid funds does not mean that the funding should be cut. It means we need to stop the poverty industry from misusing the funds. The analysis provided in this book, and the practices that are exposed, are intended to call out for broader policy debate and reforms in order to improve the programs and targeted funding so that needed assistance truly reaches those in need.
We can all disagree about the best way to help vulnerable populations. And we will. But we all should be able to agree that when aid funds are generated with specific intent to help those in need, those funds should be used as intended.
This book also does not condemn contracts with private companies to help with government services. However, the book does condemn private contracts that use the vulnerable as a revenue source and that help to redirect aid funds to government coffers and private profit.
States have underfunded their human service agencies, and states themselves are also cash-strapped. Having faced years of poor fiscal climates and a political environment opposed to raising revenue through general taxation, states are desperate for other ways to raise revenue. However, the fact that states and human service agencies need more money does not rationalize using the vulnerable in revenue schemes.
Rather than focusing on how to use the vulnerable in revenue strategies, the poverty industry should use its collective energy and resources to determine the best way to help those in need. In the process of considering improved ways of providing assistance, several simple principles should be followed. Medicaid funds intended to help care for the elderly in nursing homes should be used to care for the elderly. Funds intended to help hospitals serve the poor should be used to help hospitals serve the poor. Impoverished schoolchildren with special needs should not be used as a tool to route their aid funds to general revenue. Child support should only be pursued and used to help children. Survivor and disability benefits belonging to abused and neglected children should only be used to benefit those children. Veterans’ benefits received by a child whose parent died in the military should only be used to help that child. Elderly nursing home residents and vulnerable children should not be drugged to the point of sedation to save money and increase revenue. Courts and probation officers should focus on justice, public safety, and rehabilitation, not be transformed into debtor-prison revenue centers.
Obvious. But the shift will not be easy. Revenue maximization schemes that use the vulnerable as revenue tools have become entrenched in the mind-set of state and human service agency leadership, and the practices are bipartisan. Democrats and Republicans alike have increasingly used children and the poor as revenue tools, and have been able to do so because the rest of us have been unaware. Hopefully, increased awareness will help shed light on the poverty industry practices and to encourage needed change.
Much discussion and debate are needed to begin reeling in the poverty industry and realigning the mission of human service agencies with best serving the needs of their beneficiaries. Some suggestions are provided here, with the goal of providing a beginning to the discussion.
The conflict between the purpose and fiscal self-interests of human service agencies, introduced in chapter 1, laid the groundwork for the poverty industry practices discussed in this book. To reduce the resulting harm, the conflict must be resolved.
In feudal England, the parens patriae doctrine provided power to protect the vulnerable, but the power was often misused for fiscal gain. The king used the protective power to assert guardianship over the children of wealthy landowners in order to increase riches for the Crown. The king considered it his right to take assets from the children of landed gentry after their parents died, in return for providing wardship services. And the king also often sold off wardship and marriage rights to the children. Thus, the purpose of parens patriae to protect children in the king’s realm in turn rationalized the power to assert dominion over the children and the children’s property and funds. Children were used rather than helped.
Eventually, enlightenment and awareness led to societal revulsion that forced the end of such practices. But similar practices have begun again.
The parens patriae doctrine still exists today, and provides the purpose and power of human service agencies to serve vulnerable children and adults. As today’s agency inheritors of the parens patriae power face their own search for increased revenue, they have looked back and taken hold of the doctrine’s unfortunate beginnings. Although wealthy children are no longer targeted, the rich targets have been replaced with the poor. Revenue maximization strategies concocted with private consultants again target children and adults with revenue-producing potential—but today’s targets are the vulnerable rather than the entitled: abused and neglected children, the poor, the disabled, and the elderly.
In fact, today’s agency practices are in many ways worse than those of feudal times. Whereas children born into the privileged class structure of the feudal tenurial system might maintain their social status and privilege after reaching the age of adulthood and no longer needing wardship care, children today enter foster care poor and leave care poor—if not worse.
Similarly, impoverished adults, the disabled, and the elderly are often not faring well under the care of their agency protectors. Agencies created to help these populations are instead using them to bolster revenue, while the vulnerable languish in Dickensian conditions. Further, rather than supporting low-income families, the agencies pursue a revenue strategy of forcing poor mothers to sue poor fathers and then taking any resulting child support as government revenue—weakening the already fragile families.
So, as human service agencies have sought to turn the clock back hundreds of years to rationalize their treatment of their beneficiaries as a source of funds, enlightenment is necessary again. Despite the agencies’ loathing of judicial review, litigation must continue to bring the practices to the attention of the courts. Despite the agencies’ seeking confidentiality in their practices, the public must be made aware. And despite the agencies’ preference for unfettered discretion, Congress and state legislatures must force the agencies to only act in the best interests of their beneficiaries—if the agencies will not do so of their own accord.
In the end, it’s not complicated. Agencies created with the purpose of serving the vulnerable should only use their power to serve that goal. The following sections provide some initial discussion regarding how this principle can be upheld to begin remedying the harm of the revenue strategies discussed in this book.
When a child enters foster care, the child welfare agency requires flexibility and discretion to determine the best way to meet the child’s evolving needs. The best mix of services and assistance is not always clear, and may continuously change. However, within such necessary discretion, one thing is certain: the agency charged with protecting an abused and neglected child should not use that child in a revenue scheme to take the child’s resources. If a child is potentially eligible for Social Security benefits due to disabilities or a deceased parent, the agency should use any such benefits belonging to the child in order to help that child. If a child is eligible for VA benefits because a parent died in the military, the agency should only use the funds for the child’s benefit.
Again, this is obvious. But unfortunately, as discussed in chapter 3, foster care agencies are partnering with private contractors to maximize federal funds that belong to foster children and then taking the funds as government revenue. Under revenue maximization contracts, private contractors receive confidential information about foster children and then work with the agency to maximize the number of children determined disabled—and to find all those children with parents who are deceased. This is done not to help the children, but to take the children’s money. Stated simply, the practice needs to stop.
The ideal way to end the misuse of foster children’s federal benefits—social security benefits or VA benefits—is through federal law. Through either federal statute or regulation, clarification could prohibit foster care agencies from using the children’s funds for the fiscal self-interests of the agency or state. In fact, former congressman Pete Stark’s office developed legislation to accomplish this needed realignment of foster care agency purpose and practices.1 Stark introduced the Foster Children Self Support Act in 2007 and again in 2010, which would have helped ensure that foster children’s own resources are used to benefit the children. The bill would have also established a planning process, so that the children’s funds are used and conserved as part of a plan to help with the children’s future transition to independence.
Unfortunately, the Foster Children Self Support Act has not yet gained sufficient congressional attention to receive a committee hearing or vote. The hope is that members of Congress will recognize the importance of this issue and give foster children the attention they deserve. While we wait, states should take action now.
Foster care agencies and their parent states should follow a simple strategy: Stop taking children’s assets. When agencies use the children for revenue, the agency’s short-term focus on financial gain ignores the long-term harm to children and to society.
Instead of contracting with private companies to maximize survivor and disability benefits in order to take the money from foster children, the foster care agencies could still contract with the revenue maximization contractors—but to actually help the children.
Companies like MAXIMUS could help states decide when to apply for disability benefits for a child—not based on the most revenue potential for the state, but when it is best for the child. Instead of “dissecting” the foster care population for the order of applying for Social Security benefits based on what children will bring in the most money for the state, companies like the Public Consulting Group could help prioritize applications based on the children’s needs and best interests. The companies could help foster care agencies manage the children’s funds and use or conserve the money in plans to help the children in their future transition to independence.
If foster care agencies refuse to do what’s right for children, legislation and litigation can seek to correct the practices. For example, Maryland legislation was introduced in 2014 and 2015 for “Protecting the Resources of Children in State Custody.”2 The bill had strong support, but after active lobbying against the legislation by the secretaries of the Maryland Department of Human Resources (under both Governor O’Malley and Governor Hogan) the bill has not yet been enacted. The hope is that the legislation will be introduced again and lawmakers will vote for the children.
In addition to legislative reform, attorneys for children should pursue state litigation to try to stop this practice. Such a lawsuit was filed on behalf of Alex, the foster child described earlier in the book.3 Unfortunately, Alex’s case was dismissed because the Maryland foster care agency convinced the court that the time limit for Alex bringing a claim began when the agency first began taking his money—although Alex was a child in foster care at the time and was given no notice of the agency’s actions.
Attorneys also pursued litigation on behalf of Ryan, another foster child described earlier in the book.4 Ryan’s case reached Maryland’s top appellate court, and his case became the first in the country to find that the foster care agency violated a child’s constitutional rights in the process of taking his money. As explained in more detail in chapter 3, the Maryland Court of Appeals ruled that the agency failed to give any notice whatsoever to Ryan regarding the agencies’ actions, in violation of his due process rights. If other state courts similarly provide foster children protection for their due process rights to notice of agency actions, advocates for the children can seek to prevent the agencies from taking the children’s funds and can suggest more preferred representative payees for the children—such as family members, pro bono attorneys or accountants, other volunteers, or nonprofit organizations. Also, we hope litigation in other states can go further and directly prohibit foster care agencies from taking children’s resources.
Involvement of juvenile courts can also help realign the purpose of foster care agencies toward always helping children rather than maximizing government revenue. The Social Security Administration has experienced difficulty in administering or monitoring the representative payee system for foster children’s disability and survivor benefits. The juvenile court system is overwhelmed too, but the two systems could help each other through communications and coordinated actions.
For example, if juvenile courts received notice when a foster care agency applies to become a child’s representative payee, the notice could help the courts and parties in the foster care proceedings to provide additional information to the SSA in its investigation for the most preferred payee. Further, the juvenile courts could then engage in investigation regarding the foster child’s resources and plans for the child’s transition to independence—to help ensure the child’s funds are used in the best way for the child. Federal and state laws already require foster care agencies to submit progress reports to juvenile courts at least every six months regarding foster children. If federal or state law also required the agencies to include information about the use of children’s Social Security benefits or other resources, the judge and the parties in the juvenile court case could take a more active role in monitoring the agencies’ actions to ensure the children’s best interests are followed. Agencies could also file such progress reports with the SSA to provide additional information not gathered through the Administration’s accounting system.
Child support enforcement actions should not harm children or their families. This is a simple point to understand. But as long as the poverty industry seeks to use child support as revenue rather than to support children, harm will result.
As explained in chapter 5, state agencies are often partnering with private companies to force child support obligations on impoverished families involved in the welfare or foster care programs, and then taking any resulting child support from the children and their families as government revenue. The practices conflict with the purposes of the foster care, social services, and child support agencies.
When these multiple human service agencies work together, the result should help the children and families—not cause harm. But the poverty industry strategy of taking child support as revenue directly hurts the best interests of children. The practice further divides already fragile families as the parents are pitted against each other. Already poor families become poorer. Families’ attempts to reunite with children in foster care are undermined. Poor fathers are alienated from their families and from the workforce. Even the states suffer a fiscal loss: any government-owed child support collections are likely outweighed by the administrative costs of collecting the payments and by the additional costs when the struggling families are more likely to need additional government assistance as a result of the practice. As long as this revenue strategy is continued, the only winners will be the private contractors of the poverty industry.
Again, the principle necessary to stop the harm is not complicated. Human service agencies should only pursue child support for the benefit of the children, not for themselves.
To achieve this needed correction of agency purpose, reform to federal law is the most direct method. Two of the primary goals of the welfare cash assistance program (TANF) are supporting the “formation and maintenance” of two-parent families and helping families to achieve economic self-sufficiency, but the child support revenue strategies undermine both goals. Requirements that poor custodial parents applying for welfare must sue the poor noncustodial parents and assign any child support to the government should be replaced with policies that support families and children. Caseworkers could help custodial parents decide if pursuing child support is in the best interests of the children, and the decision for whether to pursue child support should belong to the custodial parent or other relative caretaker, not the government.
For example, a mother applying for public assistance might consider her relationship with the father and whether opening a child support case would harm the fragile relationship that often exists. Some parents may decide that forgoing child support services will allow the relationship to grow, encouraging more informal support and cooperative assistance in raising the child, and even possibly leading to cohabitation or marriage. Parents will also be able to assess whether the potential benefits of pursuing child support are outweighed by the risk of domestic violence from an abusive, absent parent.
For cases where children are in foster care, Congress could amend federal law to require states to exercise discretion and only refer foster care cases for child support enforcement if not contrary to the children’s best interests or in conflict with case-planning goals. For example, when the case plan is reunification with the mother, then an agency’s pursuit of child support against the mother would conflict with that goal. Further, federal law should also rectify current illegal practices by prohibiting states from using foster children as collateral—where children are only returned if government-owed support is paid. And an agency should only seek to terminate parental rights if doing so is in the child’s best interests, not because of a government debt.
If a decision is made to pursue child support, the child support assignment requirements should be eliminated so that any collected child support is used to care for the children. As confirmed by a study in Wisconsin, such a policy would lead to increased child support payments, increased family economic stability, and lower child poverty rates. If an agency pursues child support when a child is in foster care, the child support could be used to improve the child’s care by directing the payments to increase the inadequate financial assistance provided to the child’s foster home. Or, the payments could be conserved in trust to assist the child with the difficult transition to independence after aging out of foster care.
Until federal law reform occurs, states and their human service agencies already possess the ability to do what’s right for children and families. States have broad discretion to define good cause exceptions to current child support cooperation requirements, to protect the best interests of the children and support the relationships in fragile families. Similarly, states already have discretion to only refer foster care cases for child support enforcement when not harmful to the best interests of children or case planning goals.
Further, even if government-owed child support is pursued, federal policy encourages states to “pass through” some of the assigned child support back to the families and allow payments go to families first. Unfortunately, despite the federal encouragement for “pass through” and “families first” policies, most states have not used such discretion to help children and families. For example, Maryland is ranked as one of the richest states in the country, but thus far Maryland has declined to implement the families first policy and does not pass through a single penny of child support to families on public assistance. In comparison, West Virginia is 48th in the rankings of the richest states but passed through more than $2.6 million in child support to families on public assistance in 2013.5 And Tennessee, which ranks as 44th in per capita wealth, passed through almost $22 million in child support to families receiving public assistance.6
Ultimately the solution to stopping the harm from poverty industry strategies using child support lies in the words of the child support obligation. Child support should only provide support to the children. Hopefully, more states will begin to embrace this simple but crucial principle.
Continuing obvious but needed change to realign the purpose of human service agencies, when an agency or state receives federal Medicaid funds, the funds should only be used for the intended Medicaid purposes. Again, the poverty industry collaboration of government with private contractors should benefit, not use, the vulnerable populations.
The structure and process for states claiming federal Medicaid funds is complex, and improvements from the federal government are needed. However, although the structure is complex, the principle that Medicaid funds should be used for intended Medicaid purposes is simple. States and human service agencies know when they are doing wrong.
For example, when New Jersey requires school districts to use poor children to maximize school-based Medicaid claims and then diverts more than 80 percent of the funds to general state coffers, the state knows the aid funds are not being used as intended. When Texas uses illusory Medicaid maximization strategies to divert $1.7 billion in Medicaid funds to general revenue over a five-year period, the state knows the aid funds are not being used as intended. And when Maryland uses a bed tax scheme to divert up to 35 percent of Medicaid funds from poor-performing nursing homes to general funds, the state knows that the aid funds are not being used as intended.
But perhaps the most alarming aspect about the poverty industry’s revenue maximization schemes and diversion of government aid is what we don’t know. Although significant data and examples are provided in this book, no national data exist to determine exactly how much Medicaid funding is being diverted by the poverty industry to other purposes. We know it’s a lot, in the billions, but we don’t know exactly how much. Some schemes are at the state level, some at the county level, and some at the agency level, and many are hidden from public view through Enronesque budget and accounting gimmicks.
Thus, states must be more accountable in how they use aid funds. When the federal Center for Medicare and Medicaid Services provides Medicaid funds to states, the federal agency should be able to better monitor how the states use the money. When states request and receive the federal Medicaid funds, they should be able to accurately explain how they use the funds. To fully fix the problem, the scope of the problem needs to be fully exposed. As a beginning, further investigation and audits by the General Accounting Office and the U.S. Department of Health and Human Services Inspector General’s Office can better account for the full extent of how Medicaid funds are actually used.
In addition to the need for increased monitoring and accountability, the following section describes additional structural reforms to consider—in order to begin restoring integrity to our safety net programs.
Chapter 2 described fiscal federalism, the economic structure in which the federal and state governments collaborate to administer America’s largest aid programs. The chapter also explained how the poverty industry has undermined the intended benefits of the federal-state partnership and resulted in the misuse of billions in aid dollars intended to help the vulnerable. Several possible reforms should be considered to begin putting a stop to the harm of the poverty industry and restoring fiscal and legal integrity to safety net programs.
First, the core statutory purpose of federal matching grant programs like Medicaid and the Title IV-E Foster Care program must be preserved. Congress created these programs to match federal dollars with state dollars to increase needed services to maltreated children and the poor. For example, if a state receives $50 in federal matching funds for $50 in state spending on Medicaid, the result should be $100 used for the intended Medicaid services. But in the illusory revenue strategies discussed in chapter 4, the $50 in federal dollars is claimed without any actual state spending, and sometimes even part or all of the federal aid is directed to other uses.
This widespread gaming needs to stop. Congress should further clarify statutory language regarding the purpose of matching grant program funds so that funds intended to increase services to the vulnerable must not be used for other purposes. For example, strict requirements can be added that federal matching funds must supplement, not supplant, the state funds. Illusory revenue maximization schemes that result in state agency claims for federal matching funds without any actual additional state spending should be prohibited. At the beginning of the Medicaid program, Congress included a “maintenance of state effort” provision to help ensure the federal aid was used to increase needed healthcare services rather than be diverted by states for other purposes. The language required that the funds “shall be used directly in the public assistance program and may not be withdrawn from the program by the States.”7 Although such requirement is already inherent in the statutory purpose of the Medicaid program, the directive may be necessary again.
When the poverty industry misuses aid funds intended for the vulnerable, the government actors and private companies involved in the schemes should be held accountable for the misuse. For example, the Center for Medicare and Medicaid Services (CMS) has broad authority to protect the integrity of the Medicaid program. CMS should improve its use of that authority to clamp down on state practices that are not consistent with the statutory purpose of the Medicaid program. If more authority is ultimately needed, Congress should provide it. But in the meantime, CMS already has discretion to deny a state’s proposed Medicaid plan if inconsistent with the statutory purposes and framework. CMS could also construe its authority as a means to prohibit the poverty industry’s illusory claiming practices or inappropriate use of federal aid payments.
Further, a state engaged in such inappropriate practices should be subject to fines and additional audits, and should be required to redirect the funds to provide Medicaid services as intended. If a private company causes such illusory or fraudulent practices, the company should be pursued under the False Claims Act. If found to be responsible for illusory claims or the misuse of aid funds, the company should be barred from further contractual participation with the federal aid programs.
Both sides of the poverty industry collaboration have spurred the poverty industry practices. Cash-strapped states and human service agencies, unwilling to raise sufficient revenue through general taxation, are seeking funding anywhere else they can find it. Private revenue maximization contractors have discovered a lucrative way to cash in on the cash-strapped states, helping to guide them in the process of seeking revenue from the children and the poor.
Rather than helping states and agencies to best serve the vulnerable, too often the contractors are helping states and agencies to use the vulnerable. The contractors frequently entice states and agencies through contingency-fee contracts, in which the companies help increase claims for aid funds and the states and agencies pay nothing as the companies take a percentage of the increased funds.
In chapter 2, the inappropriateness and likely illegality of using contingency-fee contracts to maximize claims for federal aid is explained. Thus, as part of the process of reining in revenue maximization contractors, the federal government should prohibit the use of such contingency-fee contracts. Even without a prohibition, states should recognize that contingency-fee contracts greatly increase the occurrence of incorrect and sometimes fraudulent claims for aid funds—increasing the likelihood of federal audits. Further, the contingency-fee arrangement causes the focus to be all about the money, rather than about the best interests of the vulnerable. For example, strategies of private contractors in chapter 3 discussed how the companies looked for potentially disabled foster children and “dissected” the population and ranked the children based on the ease and speed with which they would produce revenue—rather than evaluating the extent of the children’s needs.
Because of the complexity of the claiming process for federal aid, revenue maximization contractors can serve a helpful role if the contracts are structured and monitored appropriately to improve integrity. The contracts could include flat-fee payment arrangements rather than contingency fees, or performance incentives could be used that focus on accuracy or the best interests of vulnerable populations rather than maximizing money to the state.
As we consider ways to improve the integrity of how states and their contractors claim and use federal aid funds, the federal government should also consider structural improvements to the aid programs and claiming process. The rules governing claims for funds should be simplified and include improved targeting toward programmatic purposes, and federal guidance and enforcement of the rules must be consistent.
The federal government should continually improve its auditing and monitoring of how states claim and use federal aid but also recognize that the use of private contractors for such audits can cause further harm to fiscal federalism’s goals. While states have been hiring contingency-fee contractors to increase claims for federal aid, the federal government has also been using private contingency-fee contractors to audit and recover improper claims. Just as states should stop using contingency-fee contracts, the federal government should stop as well. Although lucrative for the poverty industry contractors—because they can make money coming and going—the conflicting roles increase harm to fiscal federalism’s hope for a harmonious collaboration between the federal government and states in the provision of needed aid.
Debate and analysis should continue regarding other possible structural reforms, including how to balance the administration and financing of aid programs between the federal and state governments. However, significant caution and concern should guide any consideration of the theme in GOP proposals to restructure poverty programs by just giving all the federal money to states and letting them do what they want. Senator Marco Rubio termed the proposal “flex funds,” through which he basically proposes to consolidate most or all federal aid funds and give it all to states as flexible money to do what they wish.8 Similarly, Congressman Paul Ryan proposed an “opportunity grant” that would take our largest safety net programs—including food stamps (SNAP), housing vouchers, and childcare assistance—and terminate those programs and instead give all the money to states in a block grant for flexible use.9
The theory behind these flexible block grant proposals is simple: Because states should be better able to understand regional needs of the vulnerable, all the money should be given to states—without controls—in order to let states flexibly meet those regional needs. However, the flaw with the theory is glaring. As shown throughout this book, even with stringent program rules and multiple audits such as in the Medicaid program, states and their revenue contractors seek out loopholes and illusory schemes to maximize and divert the aid to other uses. As explained in the Boston Globe regarding Mitt Romney’s Medicaid maximization schemes: “It’s not hard to imagine how a governor—one that employs complex shell games to find loopholes in federal rules in order to maximize and divert federal aid—would use the federal funds if handed to the state without any federal oversight.”10 A proper response to state misuse of federal aid is not to give those states even more discretion to do whatever they wish—but to simplify the claiming process, reduce loopholes allowing the revenue schemes, and improve oversight to ensure Medicaid funds are used as intended.
Mission matters. When the poverty industry places the mission of maximizing revenue and profit over serving those in need, the vulnerable are harmed. And when the vulnerable are harmed, we are all harmed.
As explained earlier in the book, vulnerability does not imply weakness. We are all vulnerable. And, like it or not, we are all interdependent—with each other and with our government institutions. Some of us are just more vulnerable at times than others. In fact, writers and researchers such as Brené Brown have recognized that vulnerability and connectivity are traits that should be embraced by leaders in both the public and private sectors.11
The poverty industry includes the vast combined powers of government and private enterprise. This collaboration has the capacity to do immense good, if the right goals are pursued.
States and their human service agencies must lead the way, because they ultimately control the purpose of their partnership with private contractors. And in order for the partnership to realize its true potential to best serve our country’s vulnerable populations, the agencies must first have the strength to embrace their own vulnerabilities—because truth and strength lie in vulnerability.
The temptation for underfunded agencies to prioritize their own fiscal interests through the revenue strategies discussed in this book is strong, and can temporarily help the agencies to feel more secure in their existence. However, if agency existence takes priority over purpose, then the meaning of that existence is lost.