At least since the passage of California’s Proposition 13 in 1978—in which property owners voted to halve their property taxes—the United States has struggled with an anti-tax mentality revolving around the belief that government is ineffective. That sentiment is nowhere so clearly expressed as in wingnut Grover Norquist’s famous dictum that government should be small enough to drown in a bathtub. Indeed, the right’s efforts to starve government of the level of resources necessary for competent functioning have made a self-fulfilling prophecy of the claim that government is moribund.
Daniel L. Hatcher’s The Poverty Industry exposes one way that states have responded to the anti-tax climate and diminishing federal funds. Facing budget crises but reluctant to raise taxes, many state politicians treat federal dollars available for poverty-relief programs as an easy mark from which they can mine revenue without political consequence. They divert federal funding earmarked for social programs for children and the elderly, repurposing it for their general funds with the help of private companies that in effect launder money for them. A law professor at the University of Baltimore who has represented Maryland victims of such schemes, Hatcher presents a distressing picture of how states routinely defraud taxpayers of millions of federal dollars.
This is possible because there is a near-total absence of accountability for how states use federal money intended to fight poverty. Remarkably, states do not even have to pretend to have used all the funds for the stated purpose; they are only required to show that they are taking care of the populations for which the funds were intended. Medicaid, for example, operates as a matching program: states receive federal payments that match state spending on health care for low-income residents. The purpose of this “fiscal federalism” is to merge federal resources with states’ understandings of their own populations’ needs. But the grant system is rife with abuse. The more money that states claim they spend on qualifying Medicaid services, the more federal money they can receive. Hatcher demonstrates how states contract with companies to find ways to claim very high administrative costs for these social programs, which the federal government will reimburse, creating more money they can siphon off into the general fund.
Exacerbating states’ natural inclination toward grift, private companies have taken power at all stages of the welfare system and have done so with an eye on states’ and their own bottom lines. States almost universally contract with private corporations to administer their welfare programs. Welfare providers, such as hospitals, also hire private companies to help them maximize payment claims. States then hire additional private companies to help them reduce their payouts to providers and increase their claims from the federal government. The federal government hires the same or similar companies to audit Medicaid and other industries and to review state actions. These companies lobby heavily at the state and national levels for their own interests and with little public scrutiny brought to bear on how they conduct their business. Hatcher details how often conflicts of interest and pay-to-play arrangements influence the votes of state politicians, for example. At each step, the companies profit off a system designed to provide a safety net for our most vulnerable citizens. They are, quite literally, stealing from the poor. And although it has the authority to do so, the federal government rarely pursues prosecution against revenue maximization schemes.
Agency confidentiality statutes mean that it is very difficult to prove misallocation claims against state agencies, which regularly rebuff efforts to collect evidence by saying that opening records would violate recipients’ privacy. In 2004 Alabama spent enough money on child welfare to pay each child $3750 a month, but it only paid its foster care providers between $400 and $450 per month. The state claims the rest of the money is spent on providing services for the children, but accounting for nearly 90 percent of that money remains nearly impossible. And while Hatcher notes that some of it did go toward the intended services, much of it almost certainly found its way into poverty industry hands.
• • •
A leading corporate perpetrator of the poverty industry, in Hatcher’s telling, is MAXIMUS. Founded in 1975, the company works with governments around the globe as a private contractor for government aid programs. The company was found guilty of intentionally creating incorrect Medicaid claims while in a revenue maximization contract with the District of Columbia, and had to pay a $30 million federal fine in 2007. Yet its methods are so intensely profitable—for both states and itself—that it continues to win more state contracts. Hatcher uncovered MAXIMUS emails to Maryland officials in which it warned that the state was losing out by not pocketing more money intended for poor children; in the same email, it offered to help in that process.
Companies that arose in the military-industrial complex, including Northrup Grumman and Lockheed Martin, are now helping to create the poverty-industrial complex by going into this profitable revenue maximization business themselves. These companies make money if they can remove children from welfare rolls. A whistleblower lawsuit revealed that WellCare—a company that had already paid a $10 million fine for defrauding Florida’s Medicaid and Healthy Kids programs, and that has acknowledged illegal campaign finance contributions—held a celebratory dinner after removing 425 babies from state welfare rolls, lessening its financial responsibility and increasing corporate profits. WellCare had to pay a $137.5 million settlement to the Justice Department to settle that lawsuit.
As Hatcher explains, there are a number of ways for states to make money off of foster children. For example, the state can declare them disabled and therefore eligible for Social Security benefits. The state then names itself their trustees and gets to keep the money. Hatcher argues that the same is true for children receiving veterans’ benefits. For example, a guardian state can manufacture ways to increase the administrative costs of managing and dispersing benefits so that it can add those charges to the federal government’s tab. It may also seek to place children in its care with foster families rather than find a relative who can care for the child because it then profits from continuing to administer benefits for the child. It might put children in its care on prescription drugs to sedate their behavior so it can reduce staffing costs and charge for the medicines, even if their behavior can be managed without sedation. Tragically, states often treat vulnerable children in their care as cash machines.
Daniel L. Hatcher’s The Poverty Industry exposes one way that states have responded to the anti-tax climate and diminishing federal funds. Facing budget crises but reluctant to raise taxes, many state politicians treat federal dollars available for poverty-relief programs as an easy mark from which they can mine revenue without political consequence. They divert federal funding earmarked for social programs for children and the elderly, repurposing it for their general funds with the help of private companies that in effect launder money for them. A law professor at the University of Baltimore who has represented Maryland victims of such schemes, Hatcher presents a distressing picture of how states routinely defraud taxpayers of millions of federal dollars.This is possible because there is a near-total absence of accountability for how states use federal money intended to fight poverty. Remarkably, states do not even have to pretend to have used all the funds for the stated purpose; they are only required to show that they are taking care of the populations for which the funds were intended. Medicaid, for example, operates as a matching program: states receive federal payments that match state spending on health care for low-income residents. The purpose of this “fiscal federalism” is to merge federal resources with states’ understandings of their own populations’ needs. But the grant system is rife with abuse. The more money that states claim they spend on qualifying Medicaid services, the more federal money they can receive. Hatcher demonstrates how states contract with companies to find ways to claim very high administrative costs for these social programs, which the federal government will reimburse, creating more money they can siphon off into the general fund.
Exacerbating states’ natural inclination toward grift, private companies have taken power at all stages of the welfare system and have done so with an eye on states’ and their own bottom lines. States almost universally contract with private corporations to administer their welfare programs. Welfare providers, such as hospitals, also hire private companies to help them maximize payment claims. States then hire additional private companies to help them reduce their payouts to providers and increase their claims from the federal government. The federal government hires the same or similar companies to audit Medicaid and other industries and to review state actions. These companies lobby heavily at the state and national levels for their own interests and with little public scrutiny brought to bear on how they conduct their business. Hatcher details how often conflicts of interest and pay-to-play arrangements influence the votes of state politicians, for example. At each step, the companies profit off a system designed to provide a safety net for our most vulnerable citizens. They are, quite literally, stealing from the poor. And although it has the authority to do so, the federal government rarely pursues prosecution against revenue maximization schemes.
Agency confidentiality statutes mean that it is very difficult to prove misallocation claims against state agencies, which regularly rebuff efforts to collect evidence by saying that opening records would violate recipients’ privacy. In 2004 Alabama spent enough money on child welfare to pay each child $3750 a month, but it only paid its foster care providers between $400 and $450 per month. The state claims the rest of the money is spent on providing services for the children, but accounting for nearly 90 percent of that money remains nearly impossible. And while Hatcher notes that some of it did go toward the intended services, much of it almost certainly found its way into poverty industry hands.
• • •
A leading corporate perpetrator of the poverty industry, in Hatcher’s telling, is MAXIMUS. Founded in 1975, the company works with governments around the globe as a private contractor for government aid programs. The company was found guilty of intentionally creating incorrect Medicaid claims while in a revenue maximization contract with the District of Columbia, and had to pay a $30 million federal fine in 2007. Yet its methods are so intensely profitable—for both states and itself—that it continues to win more state contracts. Hatcher uncovered MAXIMUS emails to Maryland officials in which it warned that the state was losing out by not pocketing more money intended for poor children; in the same email, it offered to help in that process.
Companies that arose in the military-industrial complex, including Northrup Grumman and Lockheed Martin, are now helping to create the poverty-industrial complex by going into this profitable revenue maximization business themselves. These companies make money if they can remove children from welfare rolls. A whistleblower lawsuit revealed that WellCare—a company that had already paid a $10 million fine for defrauding Florida’s Medicaid and Healthy Kids programs, and that has acknowledged illegal campaign finance contributions—held a celebratory dinner after removing 425 babies from state welfare rolls, lessening its financial responsibility and increasing corporate profits. WellCare had to pay a $137.5 million settlement to the Justice Department to settle that lawsuit.
As Hatcher explains, there are a number of ways for states to make money off of foster children. For example, the state can declare them disabled and therefore eligible for Social Security benefits. The state then names itself their trustees and gets to keep the money. Hatcher argues that the same is true for children receiving veterans’ benefits. For example, a guardian state can manufacture ways to increase the administrative costs of managing and dispersing benefits so that it can add those charges to the federal government’s tab. It may also seek to place children in its care with foster families rather than find a relative who can care for the child because it then profits from continuing to administer benefits for the child. It might put children in its care on prescription drugs to sedate their behavior so it can reduce staffing costs and charge for the medicines, even if their behavior can be managed without sedation. Tragically, states often treat vulnerable children in their care as cash machines.
by Erik Loomis, Boston Review | Read more:
Image: Mother And Child (1908) by Egon Schiele
