Giving welfare recipients choice increases costs

Giving welfare recipients choice ups costs, improves outcomes, says ProdCom

By Pattrick Smellie

April 28 (BusinessDesk) - Letting people choose how their government funds for social service are spent is likely to be more costly than traditional delivery through government agencies because people making choices tend to use their full entitlements, according to the Productivity Commission's draft report on "effective social services", issued today for public submissions.

The move to "client-based" funding of social services is a key element of the government's social policy reforms, which are in turn backed by the "investment approach" to social services spending, adopted since 2011 by Finance Minister Bill English. Today's draft report encourages "greater and smarter use of delegation and devolution in the social services system".

"Social services that give clients an entitlement to a level of support and choice over how that entitlement is spent promote innovation and responsiveness in provision," the draft report finds. "Yet such programmes create pressures to expand entitlements, increasing programme costs. Programme design need mechanisms for keeping costs within budget.

"A commonly cited reason for the additional cost is that clients using client-directed programmes tend to use their full entitlement, while clients of agency-directed services did not."

A pilot study by the Ministry of Health in 2010 found "allocations for clients who moved from agency-led to client-directed funding increased by an average of 14.9 percent," the report says. "The increase was largely due to having their needs assessed as higher than they were previously."

English is due to deliver his seventh and "most difficult" budget on May 21, with a major focus expected on child poverty and on getting more value for money from the $34 billion in government spending on health, education, social welfare, accident compensation, Maori development, police, prisons, and social housing expenditure.

The 347-page report notes that its findings echo many of the conclusions and recommendations of successive reports over the last 20 years, and noting that policymakers are still failing to evaluate which social service initiatives work and which don't.

"Ministers and government agencies tend to focus on the flow of new social services initiatives," the commission says. "Relatively little attention is given to actively managing the large stock of social service programmes that account for the majority of public expenditure."

For example, "strong evidence" shows that early intervention works well, but provision of early intervention social services remains "piecemeal and patchy".

The draft report outlines but stops short of recommending the addition of an "insurance approach" to the existing investment approach, which itself uses an insurance industry-style actuarial approach to measure the long-term cost of social service needs. The intention is to target a reduction in that long-term cost as a main measure of whether current policies are working.

The report notes the creation of a government-run National Disability Insurance Scheme in Australia, and that the Australian federal government has received recommendations that it adopt New Zealand's investment approach to its social services spend.

Submissions from non-government providers of social services quoted in the report show strong divisions about both the investment approach and competitive funding, with fears expressed that many agencies were already cash-strapped and needed at least baseline funding to have certainty of operations. Others were concerned about service quality in a client-led funding system.

The Hokianga Health Enterprise Trust welcomed the discussion of "devolving decisions, and the tension between accountability and flexibility."

Among problems with competitive funding and client-led decision-making was the risk of people choosing services from their local networks, with "a risk that people performing key functions/roles are not adequately trained."

The issues paper leading to today's draft report provoked 130 submissions and more than 100 consultation meetings were held. Submissions are sought by June 24 before the commission produces a final report in August.

The Productivity Commission, created in 2008 as part of the National Party's coalition agreement with the Act party, undertakes investigations into areas of policy identified by the government and is modelled on the Australian Productivity Commission. Earlier reports include areas such as housing construction costs and regulatory efficiency.

(BusinessDesk)

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