Historical Context: War on Poverty to Privatization

• 1950s poverty rate: 22%, double current rate
• 1964: Lyndon B. Johnson declares "unconditional war on poverty"
• Social spending as % of GDP skyrockets after 1964
• Programs include Medicare, Medicaid, food stamps, public education
• Poverty declined 30% in 5 years, from 22% to 12-13%
• Progress eventually slowed, public tired of welfare spending

Reagan Era Privatization Shift (1980s)

• Reagan wanted to reduce spending, feared welfare dependency
• Mythologization of CEO efficiency during economic struggles
• Fundamental shift: government → states → for-profit companies → citizens
• Private companies tasked with:
  • Distributing welfare money
  • Determining eligibility
  • Verifying work requirements
• Theory: profit motives would create efficiency, reduce waste
• Clinton administration accelerated privatization trend

Case Study 1: Tax Preparation Industry

• Earned Income Tax Credit: maxes out around $7,000 for working poor
• 45-page instruction manual for simple benefit
• Companies like Liberty Tax target low-income customers
• Predatory practices:
  • Secret fees skimmed from refunds
  • Refund anticipation loans (payday loans)
  • High interest rates, unexpected fees
  • Black box pricing structure
• Liberty Tax recently sued by DC for deceptive practices
• Should be simple 5-minute process like other countries

Case Study 2: Section 8 Housing Vouchers

• Government gives vouchers to low-income people for rent subsidies
• Landlords jack up prices knowing government will pay
• DC example: $1,600 apartment charged $2,500 (56% markup)
• Washington Post investigation: DC overpaying $1 million/month
• Enriches landlords while depleting assisted housing funds
• Market distortion, not free market principles

Case Study 3: Corporate Middlemen (Maximus)

• Maximus revenue growth: $88M (1995) → $500M → $4.9B today
• Tennessee Medicaid takeover results:
  • 23% increase in uninsured children
  • Elderly/children booted from program
• Kansas Medicaid (2016): massive application backlogs
• Incentive structure problems:
  • Vulnerable populations not their customers
  • Profit from cutting costs, not serving people
  • Cheaper to deem people ineligible
• Maximus financials: 20% gross margin, 3% net margin
• CEO compensation: $7.3M, $1M+ lobbying spending

Case Study 4: Medicaid Dentistry

• Dentists specializing exclusively in Medicaid patients
• Target vulnerable populations less likely to advocate
• Exploitation examples:
  • North Carolina dentist: 17 root canals on 3-year-old
  • Cool Smiles franchise: $24M settlement for unnecessary procedures
  • Tooth extractions, steel crowns, root canals on babies
• Volume-based business model encourages overtreatment

Case Study 5: Dialysis Centers (Davita)

• Government subsidizes dialysis at $380/treatment since 1970s
• Davita: largest dialysis company in US
• Profit maximization strategies:
  • Keep machines occupied maximum hours
  • Reduce staffing levels
  • Higher death rates in for-profit centers
  • 17% fewer kidney transplant referrals
• Settlements totaling $1B+ including:
  • $350M for paying doctors to recruit patients
  • $450M for billing for discarded medicine
• Perverse incentive: transplant = lost customer

Case Study 6: Foster Children Benefits Diversion

• Federal government provides ~$700/month for disabled/orphaned foster children
• States hire companies like Maximus to identify eligible children
• Corporate middlemen divert money from children to state coffers
• Compensation structure: $1,600 per child identified (Alaska example)
• Recent diversions:
  • Washington State: $6.89M (2018)
  • Wisconsin: $413M
  • Illinois: $18.7M
• Money intended for most vulnerable children redirected

Solutions and Recommendations

• Stop unchecked privatization expansion
• Increase oversight and regulation accounting for profit incentives
• Create real competition, not near-monopolies
• Implement profit caps (California dialysis example: $100M+ opposition)
• Government must demand better performance as customer
• Close loopholes that enable exploitation
• Re-evaluate profit's role in public welfare administration