Privatization of Welfare Services: A Review of the Literature. Introduction


The private provision of government-funded services has a long history in the United States. In recent years, however, the use of private organizationsВ  both for-profit and not-for-profitВ  to perform social service functions has increased substantially, and this increase is expected to continue. The privatization of welfare services, in particular, grew substantially after passage of the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). PRWORA signaled a major shift in the federal government's philosophy regarding welfare by ending the cash assistance entitlement. Just as importantly, it gave states much more autonomy to formulate their own policies under the new Temporary Assistance for Needy Families (TANF) program. Many states have used this newfound flexibility not only to change the types of services they provide, but also to rethink the mechanisms by which these services are delivered. This legislation, together with an increasing skepticism about government and an interest in performance-based management techniques, provided an impetus for the growing use of private providers.

Not much is known about the privatization of welfare services, however, especially of those services traditionally performed by public agencies, such as eligibility determination, intake and assessment, and other case-management functions. For this reason, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) of the Department of Health and Human Services (DHHS) asked Mathematica Policy Research, Inc., (MPR) to conduct a study of privatization with a special emphasis on case management of TANF. The study will describe the experiences of, and lessons learned by, six TANF agencies that have privatized case management.

To set the stage for the case studies, this report provides a review of the literature on the privatization of welfare and related services. The empirical literature is fairly limited. The U.S. General Accounting Office has conducted studies on the privatization of government services in general (GAO 1997b, 1998). Others have conducted studies of the privatization of particular services, such as child support enforcement (GAO 1996) or JTPA employment services (Heinrich 2000), although few focus on welfare services Still others have conducted case studies of government privatization in specific states (Kornfeld 2001; Sanger 2001; Roper 1998; Yates 1997a). Given the significant changes in welfare policy that have occurred over the past five years, a clear need exists for more current and more detailed information on privatization of TANF programs.

The MPR case studies of the privatization of TANF case management as well as a forthcoming GAO study will partly meet this need for further research. The GAO will report on a survey of TANF administrators in the 50 states and the District of Columbia, as well as some counties. The survey collects information on the extent and nature of contracting out for TANF services. That study also includes six case studies of the procurement and monitoring of TANF contracts.

In the rest of this introductory chapter, we define what we mean by privatization and describe the reasons for the recent increase in privatization. Chapter II describes the current extent of privatized social services and describes the organizations that are providing services. Chapter III discusses the arguments for contracting out, while Chapter IV discusses the challenges that contracting out presents. Finally, Chapter V outlines research needs that will be met by the MPR/ASPE case studies.

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