Coporate America’s Hidden Hand in Government Programs

By Oct. 29, 20131 Comment

A glitch earlier this month that kept food stamp recipients in 17 states from accessing their benefits drew attention to the role office giant Xerox plays in electronic benefits transfers. Last week, USA Today reported that Verizon is being tapped by the White House to help iron out wrinkles in the new healthcare-exchange web platform.

Whether ordinary consumers realize it or not, companies most of us are familiar with do a lot of the heavy lifting when it comes to keeping government benefits programs running smoothly. “Over the past 15 years or so, you’ve seen an increasing use of for-profit companies in determining eligibility, placement into work, distribution and verification,” says Jessica Bartholow, a legislative advocate at the Western Center on Law and Poverty.

The distribution of benefits like Social Security and food stamps via cards instead of paper checks or vouchers opened the door for big businesses to play a role. Besides Xerox, financial services giants JP Morgan Chase and FIS work on the EBT distribution of safety net programs like food stamps. Comerica Bank was tapped by the Treasury Department five years ago to issue a prepaid debit card for people on Social Security or receiving SSI benefits who didn’t have a bank account where their money could be deposited.

This can save the government — and, by extension, American taxpayers — a lot of money. In 2008, when Comerica’s debit card for Social Security recipients was first rolled out, the Treasury estimated that taxpayers would save $44 million a year if everyone without a bank account and receiving paper checks switched over to the prepaid card. The U.S. government saves nearly a dollar every time it sends benefits via an electronic transfer instead of a paper check, according to testimony in a 2012 Congressional hearing.

But consumer advocates also say this private sector involvement in social safety net programs raises red flags.

For one thing, companies can make money — a lot of money — providing these services. “Prepaid issuers money off interchange fees when people use the cards,” points out Linda Sherry, director of national priorities for the group Consumer Action. And that’s just the tip of the iceberg. In June, an investigation by the Center for Public Integrity said that Comerica had received $22 million from the Treasury Department for offering the Direct Express cards, and this amount doesn’t include merchant interchange fees or fees by users, which the group said could be significant. “Users pay Comerica for most ATM withdrawals, online bill payments and money transfers — services that many banks provide for free,” the report said.

(MORE: CFPB Focuses on Debt Collection, Credit Reporting Companies)

Last year, an article by Peter Schweizer in The Daily Beast broke down some of the money JP Morgan Chase makes for its role in the food stamp program. “18 of the 24 states JP Morgan handles have been contracted to pay the bank up to $560,492,596.02 since 2004. Since 2007, Florida has been contracted to pay JPMorgan $90,351,202.22. Pennsylvania’s seven-year contract totaled $112,541,823.27. New York’s seven-year contract totaled $126,394,917.”

None of this contract data is made public, but Schweizer crunched some numbers and determined that, since 2004, 18 states (out of two dozen the megabank has contracts with) were contracted to pay JPMorgan Chase more than half a billion dollars.

It’s the unavailability of information about those contract details that worries other advocates. “When we move these out of the public realm, there’s a question about what information is available to us,” Bartholow says. “When a public dollar goes to prevent hunger, homelessness — there should not be a place on any budget sheet that’s proprietary.”

For-profit companies are less transparent in general, and that’s another issue consumer advocates say can cause problems when big companies take on the role of gatekeeper for government programs.

Bartholow says credit bureau Equifax, via an offering called The Work Number, has amassed an enormous database of information about people’s work histories. “The work number is this kind of secret database,” she says.

Consumer advocate Bob Sullivan describes The Work Number as “week-by-week paystub information for tens of millions of Americans.” It’s used in some states to verify eligibility for things like food stamps, and it’s going to be verifying eligibility for health insurance subsidies under the Affordable Care Act — for which the company will earn more than $329 million over five years, according to the New York Times.

(MORE: Why Are Credit Report Errors So Hard to Fix?)

But even these big-ticket contracts aren’t a guarantee of accuracy. Sometimes the information in these big databases can be wrong, and it can be a huge headache for people trying to qualify for benefits to get those mistakes fixed. Even getting credit report errors corrected can be a hassle, and that’s a relatively more user-friendly process. Credit bureau Experian is responsible for verifying people’s identity when they sign up at the new (error-prone) healthcare website. The company has a troubleshooting page on its website, but complaints persisted. “Among the technical problems thwarting consumers, according to some of those people, is the system to confirm the identities of enrollees,” the Wall Street Journal reports.

“It’s commoditizing your private information [and] it’s almost impossible to find out if you’re in the system,” Bartholow says.

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Categories Corporation, U.S.A.

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