EBT Solutions

Electronic benefits transfer is 15 years old, and for much of that time it's been a perpetual bridesmaid: full of promise but always a step or two short of its ultimate goal of bringing speed and economy to the welfare delivery system. But a government/industry partnership, boosted by welfare reform and a baldly stated federal mandate, has finally pushed EBT to the brink of being a truly national system.

The pace of EBT development has quickened in just the past few months. In 1993 only 2 percent of food stamp benefits nationally were delivered through EBT. By early 1997 that had risen to just 16 percent. But by fall of this year, expectations are that more than half of all food stamps will be processed through EBT, with a goal of all states switching completely to EBT by Oct. 1, 2002.

"I believe we'll definitely meet that goal and probably get there well before that," said Joe Leo, deputy administrator for management at the U.S. Agriculture Department's Food and Nutrition Service (FNS), which is helping marshal the EBT effort. "However, it won't be easy because you have to manage that kind of growth, and it's taxing the whole of the EBT community, both in the states that are deploying it and on the federal side, which is providing technology and other assistance."

In the way is a formidable array of potential problems: wary state agencies; state information technology shops that are already stretched in dealing with the Year 2000 problem; old infrastructure in human resources departments; dwindling budgets for government programs; and the small matter of instituting federal and state welfare reform at the same time, which requires its own heavy effort in software coding. "The next couple of years will be critical," Leo said.

But the likely rewards of EBT are even greater. Just automating food stamp distribution, a highly complex paper-driven process, might be enough. However, some states already have added other benefits to their EBT programs. As chip-powered smart card technology matures, a future EBT system could deliver all state and federal benefits through a single debit card carried in a recipient's wallet - the first truly paperless government system.

The Current Network

Some states have had EBT systems in place for several years. Maryland was the first with statewide, multiple-program EBT, which it began deploying in 1989. EBT provides about $43 million in monthly food stamp benefits, servicing about 150,000 households, as well as a number of other public cash benefits. The state has installed about 8,000 point-of-sale (POS) devices, which are the machines that "swipe" a magnetic stripe credit or debit card and are linked to banks or other sites that authorize card transactions. And more than 3,200 merchants and 2,400 bank automated teller machine (ATM) providers are involved in the system.

Maryland has gone much further than simply replacing paper food stamp coupons with electronic distribution, however. It also has placed POS devices in local gas company offices and in housing authority projects, a service that has averted many turnoffs of gas and electric power and that has dramatically reduced the rate of evictions "because now the bills mostly get paid on time," said Jerri Thomas, Maryland's EBT director.

Texas has had its statewide EBT system in place since 1995, and at the end of September 1996, it was electronically delivering food stamp benefits to 307,000 people and Temporary Assistance for Needy Families (TANF)-which was formerly Aid to Families with Dependent Children-benefits to 194,000 beneficiaries.

Benefits to the States

One of the biggest advantages Texas has found with the system, besides providing a more efficient distribution method, is in fighting benefits fraud, the potential for which had become obvious with the old paper coupons. During one computer matchup with surrounding states, as many as 600 duplicate cases were found for Texas and Oklahoma. Also, there was an active street-corner trade in "selling food stamps for 50 cents on the dollar," said Michael Jones, the public information director for Texas.

Texas expects EBT to cut a lot of this fraud. By using the computer data on magnetic-stripe EBT card transaction returns, for example, Texas authorities were able to carry out a sting operation that recently netted 83 indictments for EBT fraud. And sometime in the future-perhaps as early as 1999-Texas hopes to merge EBT with its Lone Star Image System, which is a fraud control measure now in development that uses electronic images of fingerprints to identify those eligible to receive benefits.

More recent converts to EBT seem positively giddy over its possibilities. Colorado passed legislation authorizing development of its system in 1995, and it expects to have EBT deployed statewide this month. In addition to food stamps and TANF, EBT in Colorado will deliver old-age pension benefits, Aid to the Blind, Aid to the Needy Disabled, Low-Income Energy Assistance, child care and child welfare "out-of-home" payments.

"Colorado probably has the most complicated EBT of just about any state," said Mark Tandberg, the state coordinator for EBT. "But we decided early on that if we were going to have EBT and convert to an electronic system, then we might as well have it [be] as complete a system as possible."

Such enthusiasm is not shared by every state, however, and caution is the more common mind-set. Oregon, for example, is now in the middle of deploying a statewide EBT network to distribute food stamps and TANF benefits. After May, when it expects to have the system finished, the state will consider adding other benefits, such as job support payments, day care and general assistance. The final decision will depend on how the bottom line is affected.

Caveats

"EBT costs us around $1 per month per household to deliver cash benefits," said Bill Walker, a spokesman with Oregon's Adult and Family Services Division. "I doubt if it would cost us that much to write a check." EBT is just not that cheap for states to use, he said. It's only when everything possible is taken into account-for example, the money the federal government saves in manufacturing and shipping paper coupons, plus the time and money spent by food merchants in collecting the coupons and then shipping them back to the government for release of funds-that the overall savings become obvious.

For the states, the first goal will be to make EBT at least cost-neutral. But even for the enthusiastic states, there is still the cost of the sheer effort that has to go into developing a broad-based EBT system.

"This isn't a cookie-cutter situation," said Colorado's Tandberg. "It's meant a lot of following up and then following up on the following up, including all the various affected merchants coming together on EBT [and] the ATM networks, and then our clients had to be trained, counties had to be trained and informed about EBT. And then we had to follow up as we were implementing EBT on all of these things to make sure it was being done correctly." And after all of that, he said, "we still have no idea of what the eventual savings will be from using EBT."

Interoperable EBT Systems

Now state and federal authorities are grappling with the notion of cross-

border interoperability of EBT on a regional and a national basis. Again, it is something that is considered a desirable goal, perhaps even a necessity, but it also is being taken up with varying degrees of enthusiasm. In the end, its future also will come down to a question of cost.

Interoperability is not a given with EBT. The early adopters have proprietary systems that won't easily connect to, or exchange data with, other states' systems. And even when states share the same contractors who are installing their EBT systems, different implementations of those systems could still mean they might talk in different dialects.

Nevertheless, the need for interoperability is becoming more obvious as EBT matures and patterns of EBT use become clearer. It is accepted, for example, that food stamp recipients may have to cross state borders to shop, particularly in more rural states where the only convenient store for miles around may be in a neighboring state. This was no problem with paper food stamps because federal law required that they be accepted equally in all states.

Some of the bigger grocery store chains, which may have stores in several states, object to proprietary EBT systems because such systems could cut down on the stores' overall food stamp business. But in the welfare reform legislation passed in 1996, Congress made it a requirement that states cater to this need when putting their EBT systems in place.

However, regional interoperability has been made a lot easier with various states banding to develop EBT. The Southern Alliance of States includes Alabama, Arkansas, Florida, Georgia, Missouri, North Carolina and Tennessee; the Northeast Coalition of States includes Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island and Vermont; and the Western States EBT Alliance covers Alaska, Arizona, Colorado, Hawaii, Idaho and Washington. There also have been other, smaller groupings of states on EBT development, such as North Dakota with South Dakota and Minnesota with Wisconsin.

Ostensibly, the reasons for these collaborations have had more to do with the volume cost savings that states can achieve through combined bids on requests for proposals (RFPs). But because these coalitions share the same contractor who installs the same basic infrastructure in each state, the barriers to interoperability are substantially reduced.

"At the regional level, interoperability is not an issue because we establish the interfaces," said Brian Kibble-Smith, vice president of Citibank EBT Services, the main contractor to all three major regional coalitions. "That's separate from nationwide interoperability, which is the issue here. That is what's needed to make the cards travel through the various ATM and POS systems of different states, regardless of who the EBT contractor is. Recently, the comptroller of Massachusetts has suggested that the costs for this type of interoperability should be split equally between the states and the federal government, and this is a concept that the industry supports."

What it comes down to in the end is the view of each state as to the importance of interoperability. In Texas, which has long borders with many states, the issue has been given a high priority. The state has been running an interoperability pilot with New Mexico in a small town just west of El Paso, where the border runs right down the main street, with most of the retailers on the Texas side. In this case, the whole EBT infrastructure has had to cope with two systems run by two vendors.

"This pilot has been working very well, and we are getting past the technical barriers," Texas' Jones said. "Now we want to expand that statewide to other border sites and with other states."

For other people, the case for interoperability just is not as apparent. Oregon's Walker said his state's benefits clients can use their EBT cards in other states that share major retail outlets, but "we are not into interoperability in a formal state-to-state sense. We just don't see the need for our clients to move around that much, and if they do move to other states, then we can convert what's left in their accounts, and they will apply to those other states for benefits."

Likewise, Maryland's Thomas thinks the need for interoperability is not as obvious as it seems to be for other states. "In February [1997], for example, we were providing POS access through 95 stores in five states, but only $175,000 a month in food stamp transactions were being done in these states, and that's a very small percentage of the total we do. Philosophically, we can say that interoperability is a worthwhile goal, but it boils down to how much the cost for this will be."

Meanwhile, the next round of EBT advances is already being planned. Most states are now considering how to add Women, Infant and Children programs to their EBT systems. But this requires a far more complex approach than current cash-based benefits because WIC is a more data-intensive, "prescription-based" program that might be hard for most online systems to handle.

For that reason, smart card technology is expected to be at least part of the answer for future versions of EBT. Because it has a microprocessor and memory on the card, a smart card can store large amounts of data, such as the kind needed for WIC, that would overburden an online system. Smart cards also can handle more sophisticated identification and security features and would better guard against EBT fraud.

Ohio is the only state that has an EBT system based wholly on smart card technology. It is used for food stamps now, but WIC will be added by the end of March, and other cash benefits are expected to be put onto the card by the middle of the year. The state also is in discussions with the Ohio transit authority to use the card for fare payments. Additionally, Wyoming has had a smart card pilot running for some time, and recently it issued an RFP to build a statewide smart card EBT system.

However, converting fully to smart cards is not a conceivable approach for many states because of the costs involved. Current ATM and POS systems are geared toward magnetic-stripe cards, and converting or replacing these to accommodate smart cards only, which many state EBT directors view as relatively unproven technology anyway, is seen as risky.

Nevertheless, smart card technology will probably see use in EBT systems sooner rather than later, most likely through some kind of hybrid approach that will merge the offline process of on-card chips with the familiar online approach of magnetic-stripe cards.

"Basically, we are pushing online for food stamps but are much softer on it for WIC," said the FNS' Leo. "The industry trend is pushing hybrid technology for the future so both online and offline can coexist within the retail environment. We have told our bosses that we expect that maybe five states will have WIC available on a hybrid system within the next two years."

Fully implemented smart card technology may be the ultimate end for EBT systems, he agreed, but "we will see hybrid technology in place for a long time to come."

Brian Robinson is a free-lance journalist based in Portland, Ore. He can be reached at hullite@mindspring.com.

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Who Should Pay for National EBT?

It is no surprise that cost, and who should bear it, is what's driving the debate over a nationally interoperable electronic benefits transfer system-a system that theoretically would make it simple for California EBT clients to use their benefits while in another state.

The EBT Council-a broadly representative group of financial institutions, EBT service providers, payments networks, merchants and governments-adopted in April 1996 the so-called Quest operating rules, which define certain EBT card standards and transaction sets and which will be the basis for a national EBT system. If a state adopts the Quest rules and conforms its EBT system to those rules, then it should be able to seamlessly move EBT transactions between other states that also have adopted the rules.

By the end of this year the council expects that about 30 states will be operating their EBT systems under the Quest rules, including all three of the major regional coalitions. Expectations are that a truly nationwide EBT system could deliver more than $115 billion in benefits each year, at a savings to the federal government of about $200 million.

The problem, however, is that there are costs involved in moving EBT transactions between different systems. While most people agree that this kind of interoperability is worthwhile, there is little agreement over who should pay the transaction costs.

For example, while there is functional interoperability between the members of the Southern Alliance of States (SAS), there is no interoperability for food stamps outside of the seven member states because no one is covering the fees required for cross-state transactions.

"There are costs involved, but the various EBT contractors say they cannot provide for them because they were not included in the original bidding process, and the food stamp merchants say they won't pay them because the need is not included in current food stamp regulations," said Laurie Hines, the EBT project director for Missouri and the chairwoman of the SAS Project Directors. "We want the U.S. Department of Agriculture [which runs the food stamp program] to cover the cost from the savings it will make off the EBT system, but it refuses to."

Although it's true that states also may see savings from the EBT system, SAS members "are united" in not wanting to step up and pay the fees, Hines said.

SAS and others are looking for federal legislation, which enables paper coupons to be used anywhere in the country, to be extended to EBT. At the same time, the USDA is reluctant to mandate a nationally interoperable EBT program, in part because of the current hesitation of some states in wanting to be interoperable with others.

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