Welfare work requirements & privatization: Lessons from Wisconsin

by ELISABETH GAWTHROP AND ALYSON CLARY | Apr. 26, 2023

Republican Speaker of the House Kevin McCarthy has proposed expanding work requirements for federal entitlement programs, such as the Supplemental Nutrition Assistance Program and Medicaid, as part of a deal to raise the national debt ceiling. Such an expansion of welfare work requirements has been a policy focus among prominent Republicans in recent years.

But welfare work requirements are not a new idea—they have been around since at least 1996 when Bill Clinton signed a reform bill that would, in his words, “end welfare as we know it.”

The latest season of “The Uncertain Hour,” a podcast from our colleagues at American Public Media’s Marketplace, explores the legacy and efficacy of welfare reform by examining “the welfare-to-work industrial complex, and some of the multimillion-dollar for-profit companies that run many welfare offices around the country.” The season focuses on the state of Wisconsin, an early testing ground for the welfare-to-work model and a state that has contracted with private, for-profit companies to administer much of its welfare program.

What follows is a data supplement to the in-depth reporting presented in season six of “The Uncertain Hour,” including additional details about some of the data discussed in the podcast.

Pay for performance incentives for private welfare companies

Wisconsin is one of many states that contracts with private, for-profit companies to administer its Temporary Assistance to Needy Families (TANF) program, the name assigned to the federal welfare program in that 1996 reform.

One way that private welfare-to-work companies generate revenue is through incentives based on how well they do at achieving specific outcomes for welfare recipients, such as people getting a job, keeping a job or successfully signing up for Supplemental Security Income or Social Disability Insurance. For example, a company could get $2,000 for every person who gets a job that lasts at least 30 days. It could get another $2,000 for every person who keeps their job for at least three months.

The amount of money companies receive for these outcomes is negotiated each year with the state in the companies’ contracts, and it varies by company. The types of incentives can also vary year to year. There have always been incentives for people getting and keeping a job, but other incentives such as for getting someone into a “high-wage” job have changed over the years.

These incentives, called performance outcome payments, or POPs, have made up between 20% to 30% of most companies’ earnings since 2016. In theory, incentives are tied to effectiveness. A company makes more money when they are more effective at helping the people on their caseload achieve steps toward gainful employment.

In 2021, the value of each POP incentive was lower than other years, across all companies. The results? Companies reported connecting just as many, if not more, of its participants to the program’s desired outcomes. And, companies’ overall revenue did not decrease. Thus, in 2021, the state contracts somehow made up for the dip in POP-incentive based payments to the private companies running Wisconsin’s welfare programs.

Performance-based targets

Each year, in addition to contract adjustments of the type and value of various incentives, the state and the companies also agree to a target of how many incentive claims they expect to submit. In episode five, we heard the state make the point that in recent years, companies have been meeting or exceeding their targeted number of POP claims. Our review of the records show, however, that for years before that, companies were not meeting their targets, and subsequently the target bids in their contracts with the state became lower and lower, even when taking into account falling caseloads. Eventually the targets reached a point where most companies are now meeting or exceeding them.

In 2022, the targeted number of POP claims did go up across the board. This may be related to changing labor market conditions as well as increases in the value of POP claims that year — the value of a POP claim more than doubled for at least some companies from 2021 to 2022. America Works, for example, received $3,765 in 2022 for every person on welfare that got a job lasting at least 30 days (and meeting certain hours or money earned thresholds). That’s up from $1,500 for that same incentive in 2021. In 2023, the value of that incentive for America Works rose again to $4,650.

Although 2022 data suggests a potential shift in the POP claims trends, overall it’s unclear from our analysis how effective these incentives are. 

Education and training incentives

In addition to payments for job placements, welfare administrators can earn incentives when their participants complete education or training programs—arguably helping participants achieve higher paying jobs. In 2021, the incentive companies receive for a welfare participant completing a high school degree or vocational training increased from around $500 to $2,000. So in 2021, there was a higher incentive for companies to help participants achieve educational or vocational training than to help them get a job.

Six of the eight contractors saw an increase in their revenue from educational or vocational trainings between 2020 and 2021. Nonetheless, most companies still made less revenue through education or vocational training incentives in 2021 than they had before the start of the pandemic, in 2018 or 2019. Of all the contractors in Wisconsin, the highest proportion of total revenue coming from educational incentives was 3.6% for Ross in 2021, the year the incentive payment increased substantially. 

We reached out to the Wisconsin Department of Children and Families, which oversees the state’s TANF program, to ask them why earnings from the educational and vocational training incentives remained so low. 

“Due to the pandemic,” the agency replied, “the amount of vocational trainings that participants were able to enroll in declined. Providers worked diligently to shift from in-person training to virtual; however, some still required in-person components to complete certification requirements. This decline in available trainings resulted in less earnings in this incentive.”

That additional context—the changes to educational programming forced by the COVID-19 pandemic—does help explain why revenue from educational and vocational trainings wasn’t any higher in 2021. But the larger picture remains that how much companies can earn from educational or vocational training incentives is just a fraction of the available funds for job-related outcomes. Wisconsin spends just 0.5% of its welfare dollars overall on educational and vocational training.  

As a Republican governor of Wisconsin, who later went on to serve as U.S. Secretary of Health and Human Services—overseeing the nation’s TANF program, Tommy Thompson made a name for himself advocating for welfare reform. He commonly emphasized the importance of education and vocational training as a part of that reform. “If you just require people to go to work, they’re going to take a job at Taco Bell instead of getting a welding job. You got to provide the vocational education for them,” Thompson told host Krissy Clark in episode six.

Recently, in Milwaukee, where more 6,000 TANF recipients live, relatively few people obtain a degree while a welfare participant. In 2019, eight TANF recipients in Milwaukee got a GED or equivalent degree in. In 2020, that number dropped to three. And in 2021, just one person got a GED while in TANF in Milwaukee.  

Welfare reform and poverty trends

Proponents of work requirements for government entitlement programs argue: Cash assistance to those in need keeps people in a cycle of poverty, dependent on government welfare, while work requirements help lift them out of poverty by getting them into jobs that propel them toward independence.

By this logic, we should expect to see fewer people in poverty over time, and shrinking TANF caseloads. So, is that happening?

Caseloads have indeed been dropping across all companies working in Wisconsin since at least 2016. In total, “Wisconsin Works”—the state’s TANF program—had over 24,000 participants in 2016 and only 13,230 in 2021, a 45% drop.

Over that same time horizon, however, the number of Wisconsin residents living in poverty dropped by 13%. This apparent discrepancy could be due to any number of reasons. The general poverty rate, for example, includes many people who are not eligible for TANF and is influenced by everything from global recession to tax policy. Furthermore, reporting by “The Uncertain Hour” in episode six demonstrates that not everyone eligible for TANF applies to the program due to its stringent requirements.

In addition, low-wage jobs that people may obtain via TANF job placements may not lift participants out of poverty. The federal poverty line for a three-person family in 2021 was $21,960, which is the annual income for a full-time, 40-hour-per week job paying $10.56. In 2021, the latest year for which we have data, the median wage of TANF participants in Wisconsin was $11.08—putting them just barely above the poverty line if they made that median wage, worked full time for the entire year and had no more than two children. And, unlike many states, Wisconsin has not set a minimum wage higher than the federal minimum of $7.25.

But what have poverty trends in Wisconsin looked like if we go back to the time welfare reform was enacted in the mid-1990s? Ultimately, the proportion of Wisconsin residents in poverty are around what they were at the time of the passage of welfare reform. In fact, most of the last nearly three decades saw poverty rates above what they were in 1994. In the U.S. overall, poverty rates are now slightly less than they were before welfare reform.

To get a more complete picture of how these data relate to the wider concept of welfare reform, work requirements and the privatization of welfare program administration, listen to “The Uncertain Hour's” latest season.

Do you have more questions about welfare and work requirements? We’d love to hear from you!