Transforming the poverty industry

When governments place maximizing revenue over serving those in need, the vulnerable are harmed. And when the vulnerable are harmed, so are we all. 

Daniel L. Hatcher
21 June 2016

Headquarters of the US Department of Health and Human Services, Washington DC. Credit: Wikimedia/Matthew G. Bisanz, CC BY-SA 3.0.

In an effort to shore-up its budget, New Jersey is taking federal government assistance away from school children from poor families. The state has hired a private contractor called the Public Consulting Group to access more school-based federal Medicaid funds. This money is intended to help schools serve special education needs more effectively, but New Jersey has diverted over 80 percent of the funds to its general coffers for other uses—effectively taking tens of millions of dollars from school children every year. Meanwhile, in the face of insufficient funding, schools in the state have resorted to selling ads on school buses.

In Maryland, the state foster care agency has hired a company called MAXIMUS, Inc. to find children whose parents are deceased and to increase the number of children who are determined to be disabled. This is not to provide them with more help, but to enable the state to take their disability and survivor benefits. In a prior contract to lay the groundwork for this effort, MAXIMUS described foster children as a “revenue generating mechanism.” Not only does MAXIMUS help Maryland to obtain disability and survivor benefits from foster children, the company now runs the entire Baltimore child support office.

Some US states take even more from foster children, including confiscating Veteran’s Assistance benefits from kids whose parents have died in the military. Nebraska will even take a foster child’s burial plot away from them if they have one. These practices just scratch the surface of what is taking place across the USA today, where state governments are partnering with private companies to form a vast poverty industry that turns America’s most vulnerable populations into a source of profit.  

Why is this happening?

First, human service agencies desperately need more funding and states are strapped for cash. Both ‘red’ and ‘blue’ states have faced poor economic conditions and a political climate that’s been averse to raising sufficient revenue through general taxation. So states are looking for money wherever they can find it, even if that means taking funds from children and the poor.

For example, states are using hospitals and nursing homes in Medicaid ‘shell games’ by maximizing revenue that’s intended to serve the elderly and the poor and then diverting the funds to their general budgets. Texas has used these schemes to re-route $1.7 billion in Medicaid funds to state coffers over a five-year period. Although states and the federal government are supposed to share the cost of providing Medicaid services, Texas contributes no money at all in these schemes. Instead it forces hospitals and nursing homes to provide the state’s contribution, and then takes the federal contribution for its general fund. This diversion of funds “discourages state hospitals from treating the poorest Texans.”

Second, partnerships between states and private contractors prioritize the aim of maximizing revenue over maximizing the public good. The strategies of the poverty industry skew human service agencies away from their social mission.

For example, some states and counties partner with companies to turn courts into debtor’s prisons—focusing on revenue rather than justice. Impoverished defendants are saddled with unmanageable court fines, and then the courts hire private collection agencies to pursue them, along with probation companies and firms that manufacture electronic monitoring devices which add on yet more fees. If the poor can’t pay, they go to jail. An Alabama judge told poor litigants that they must sell their blood in order to pay their court fines or face time behind bars. Poor debtors in Mississippi have been forced into penal farms to work off court fines at a rate of $58 a day.

In addition, nursing homes and juvenile facilities sedate their residents with psychotropic medications in order to reduce staffing costs and increase their profits—while pharmaceutical companies have faced charges for encouraging such behavior through illegal marketing. Johnson & Johnson agreed to pay $2.2 billion to resolve claims that the company promoted an antipsychotic drug for off-label uses, including allegations that that the company’s subsidiary “marketed Risperdal to control the behaviors and conduct of the nation’s most vulnerable patients: elderly nursing home residents, children and individuals with mental disabilities.”

What can be done to challenge and eventually reverse these trends?

First, awareness matters. Both Democratic and Republican state governors have been able to use children and the poor as revenue tools because their constituents have been kept in the dark about what’s going on, so public pressure for reform and accountability has been weak. With increased understanding of these revenue strategies, states can be held accountable if they misuse funds.

Second, mission matters. Rather than using the vulnerable to serve its own fiscal self-interests, the poverty industry should use its collective energy and resources to determine how best to support those who really are in need.  

‘Vulnerable’ does not imply weakness. I’m in awe of the strength and determination that’s shown by low-income families who are struggling to overcome the barriers that stand in the way of their economic security. To quote Professor Martha Albertson Fineman from Emory University, “[v]ulnerability is the characteristic that positions us in relation to each other as human beings and also suggests a relationship of responsibility between the state and its institutions and the individual.”

We are all vulnerable, and like it or not, we are all interdependent—both with each other and with the institutions that are designed to help us. At various times, some of us face more discrimination, trauma and disadvantage than others. When the poverty industry places the mission of maximizing revenue over serving those in need, the vulnerable are harmed. And when the vulnerable are harmed, so are we all.

When the Maryland foster care agency hires a contractor to help the state take resources away from abused and neglected children, the public’s belief in government’s commitment to the common good is harmed by an egregious breach of trust and moral integrity. And the public is also harmed financially. When agencies take resources from foster children they are less likely to become self-sufficient after leaving care and more likely to need public assistance, more likely to be unemployed, and more likely to become incarcerated. When the state harms the vulnerable, the public pays the price.

It’s clear that a fundamental realignment of purpose is required. The poverty industry combines the vast powers of government with the profit seeking appetites of private enterprise. This collaboration has the capacity to do some good if partnerships are properly constructed and regulated closely, but only if public entities lead the way. State governors and directors of human service agencies control all contracts with private companies, so rather than using them to take resources away from foster children they could encourage contractors to help children obtain their disability and survivor benefits in order to conserve the children’s funds in planning for their future transition out of foster care.

To be clear, I’m not arguing that government aid programs should be cut. On the contrary, current levels of public assistance are significantly insufficient to meet current needs. If states are misusing resources, then the appropriate response is not to cut the funding but to stop the misuse. People may disagree about the best way to structure programs that are designed to support vulnerable populations, but we all should be able to agree that funds that are generated with the specific intent of helping those in need should be used as intended.

The temptation for underfunded agencies to prioritize their own fiscal interests is very strong. But when states take funds away from the poor, the prime purpose of government in serving the public good is eroded. As a former foster child named Ryan expressed in a court hearing when questioning why the Baltimore City foster care agency could take away the survivor benefits that were left to him by his deceased father, “You know, the thing is, they are survivor benefits. I am a survivor.”

Daniel L. Hatcher’s new book is “The Poverty Industry: The Exploitation of America’s Most Vulnerable Citizens.”

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