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The Poverty Industry



I have a review of Daniel Hatcher’s The Poverty Industry: The Exploitation of America’s Most Vulnerable Citizens up at the Boston Review. Hatcher explores the utter outrage of how states and corporations combine to essentially steal public money that should go to foster children, nursing home residents, and other vulnerable people. It’s quite infuriating and I was happy to be able to write about it.

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.

Poverty contractors regularly act of their own accord even when the state has no vested interest, as with child support cases. Cases of unpaid child support arise overwhelmingly from dire poverty: most in arrears are destitute fathers who simply cannot afford to pay, and most claimants are destitute mothers who cannot afford to go without their payments. The Federal Office of Child Support Enforcement reports that over one-quarter of child support debt—$28.5 billion—is owed to the government. But states do not make a tremendous amount of money from child support via their entitlement to a portion of the money owed. That is because the cost of administering child support collection is often more than the amount the state saves from children who no longer need state support. Thus, it makes no financial sense for the state to pursue restitution. Although the amounts companies will collect per case are also small, the poverty companies, like debt collection companies, have a business model of relentlessly pursuing even tiny debts, so they prosecute delinquent fathers, absorbing much of the collected money.

Children are not the only victims of such schemes. States routinely use nursing homes as funding sources or opportunities for budget slashing. A popular strategy is to sedate relatively healthy elderly patients in order to reduce staffing costs. At one Connecticut nursing home, two-thirds of residents were found to be under the influence of antipsychotic drugs despite having no condition that warranted their use. An Indiana company, Health and Hospital Corporation, used revenue maximization strategy to take over formerly public nursing homes. Ten of the seventeen homes HHC purchased in 2003 fared worse on state report card scores by 2010, several of which were also on the federal government’s list of “most poorly performing homes.”

States also outsource probation services and court fine collections, juvenile detention centers, and hospice care—usually with similarly extortionary results.

Is it too early to start drinking?

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  • gorillagogo

    Reading this makes me wish there was a god, just so these people could burn in hell. I mean, seriously, how can you celebrate removing poor kids from welfare rolls?

    • WG in Big D

      When an individual does this, they are referred to as a sociopath. When a group of individuals do it, it is called best business practices.

      • PotemkinMetropolitanRegion

        When an asshole state government does it, it’s the solemn dignitudinous wonderglory of federalism!

        • It’s worth noting that while the worst states definitely do a lot of this, blue states do too.

      • gmack

        “Madness is rare in individuals–but in groups, parties, nations, and ages it is the rule”

  • DrDick

    More on why government should never operate like a business. Businesses are always either predators or parasites.

  • cpinva

    “Is it too early to start drinking?”

    dude, it’s always 5pm somewhere in the world.

    “Reading this makes me wish there was a god, just so these people could burn in hell.”

    where is it written that there must be a god, in order for there to be a hell? that’s simply a human construct, and humans can change it any time they want.

    • where is it written that there must be a god, in order for there to be a hell?

      Years ago, when I was working in France, I read an article in the Guardian reporting on the then-latest survey of religious belief in the US (probably Pew?); at that time, anyway, a lot of our fellow citizens (a majority, I think) believed in a literal hell, but fewer believed in a literal devil. One of my French colleagues remarked that nothing could be more American than an enfer autonôme. So probably even a god is unnecessary for OUR hell!

      • N__B

        Pullman’s His Dark Materials trilogy ultimately comes down to a war to establish the republic of heaven.

    • dr. fancypants

      Per Iain M. Banks’ Surface Detail, sufficient technological advancement would allow us to create a hell.

      • los

        “yeah, but you have to call 4 days in advance to get a building inspector down there.”

  • Murc

    The sick thing is, I often see stories like this used as justification for slashing the social safety net and/or as “proof” that poverty doesn’t really exist and its all just a big grift to the top and to the bottom. In the minds of far too many people, the government has just gotten to steal this money before the actual intended recipients got to use it on t-bone steaks and Cadillacs.

    • los

      t-bone steaks
      are these High T-bones or Low T-bones?

      /gobbermint crony capitalists cheeting the tacksplayers again.

  • Rob in CT

    Well, that’s depressing. Perfect Monday morning stuff, Erik.

  • delazeur

    Is it too early to start drinking?

    You can’t drink all day if you don’t start first thing in the morning.

  • MikeJake

    Every state needs a Charlie LeDuff.

  • vic rattlehead

    The wealth of all the executives and shareholders in these corporations should be expropriated and returned to the public. Every. Last. Dime. They. Have.

  • Hob

    I don’t know if this was just life and literature rhyming by chance, or if someone had an odd sense of humor, but MAXIMUS is awfully reminiscent of the omnipresent, bureaucratically invulnerable, uppercase-but-not-an-acronym welfare agency MODICUM in Thomas Disch’s classic science fiction satire 334 – written three years before that company was founded. Except (maybe due to the more grandiose name) the real-life one seems to be way more corrupt than the fictional dystopian one.

    • Ahuitzotl

      you call it a satire, they called it an instruction manual

  • Jake the antisoshul soshulist

    I would be curious about how much of federal funds actually reach the people yhey are intended for. One conservative yalking point I hear is how many dollars are spent for each person receiving benefits. It would be interesting to know how many dollars reach them. Not that it would change the talking point.

  • Brett

    That was a great piece. Outsourcing to private contractors are the bane of effective, humane government services – they almost always generate corruption in selection and provision, and even when they’re not providing poor quality service they’re more expensive than it would cost the state just to keep the services in-house (not to mention that when problems pile up in-house, it’s much easier to reform a wholly governmental service – see the VA reforms in the 1990s).

    And of course some of those particular cases were skin-crawling awful. What kind of fucking sociopaths hold a dinner to celebrate kicking patients off of health care? Fuck WellCare – they should have been run into the ground from lawsuits, not allowed to escape with a settlement (speaking of which, check out their modified-by-someone-working-there wikipedia article). And fuck Florida for allowing them to do that – at least Crist vetoed a favorable law towards them, something Governor Medicare Fraud probably would not have done if he was in power then.

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