A02:
IMPLEMENT NATIONWIDE, INTEGRATED ELECTRONIC BENEFITS TRANSFER

THE CHALLENGE -- A NATIONWIDE ELECTRONIC BENEFITS TRANSFER

Imagine this: A government that allows citizens to access a wide range of government benefits and services electronically -- eliminating redundant paper-based systems, improving cost efficiencies and convenience, and empowering citizens through secure electronic access and delivery of government services.

Let's consider one day in the life of Jane Smith. Jane took the morning off from work in order to meet the mailman as he delivers her federal income tax refund check. Her rent and utility payments were already overdue and last year her check was stolen from her mailbox. The mailman did not arrive until after noon and Jane rushed to take the bus to a check-cashing outlet where she was charged $10 to cash her check and another $5 for money orders to pay her bills. She stopped at the drug store to renew her prescription only to realize that she had forgotten her Medicaid eligibility card. She took another bus to the post office and waited in line for stamps and envelopes to mail her bill payments. Already too late to get to work for the day, Jane did not have exact change for the bus and ended up walking home.

Now imagine Jane's day a few years from now. On the way to the bus in the morning, Jane stops at the local ATM, inserts her new Access Card, and pays her rent and utility bills electronically and securely. She is confident after checking her balance that her income tax refund has been transferred to her EBT account. She stops at the drug store, using her Access Card to verify her eligibility for Medicaid and to pay for additional items. Still with time before getting to work, Jane stops at the post office and inserts her card at a kiosk to purchase stamps, and remembers to update information at the same kiosk for the Department of Motor Vehicles on the car she is registering. Then she's off to work.

In 1993, Vice President Gore's National Performance Review launched the development of a standard, nationwide system to deliver government benefits electronically. Electronic Benefits Transfer (EBT) enables the delivery of government benefits electronically using a single plastic card to access cash and food benefits at automated teller machine (ATM) and point-of-sale terminal locations. In addition to increased convenience and dignity for beneficiaries, EBT will dramatically reduce theft, fraud, and abuse in benefits delivery because there are fewer steps in the process, and patterns of abuse can be detected electronically. Much has been done to implement EBT nationwide. The foundation for national EBT operations has been built, and government and industry are rolling out EBT systems to provide for national operations by 1999. But EBT is just the beginning for the delivery of government services electronically to the public using card technologies.

The Federal EBT Task Force was created in November 1993 to serve as the catalyst for rapid implementation of nationwide EBT. In May 1994, Vice President Gore approved the EBT Task Force's report From Paper to Electronics: Creating a Benefit Delivery System That Works Better & Costs Less -- An Implementation Plan for Nationwide EBT.¹ This plan has served as the blueprint for the implementation of nationwide EBT and has detailed a business model of practical steps.

Create Partnerships with States and the Private Sector. States have joined together to form regional EBT alliances to share information, address regional issues related to the development of EBT, develop joint policy positions, and maximize cost efficiencies. The first of the regional alliances was formed between the EBT Task Force and the Southern Alliance of States. Subsequently, other multi-state alliances, together comprising more than 40 states, were formed in the Northeast, mid-Atlantic, mid-West, Mountain Plains, and Western regions. The regional alliances are facilitating the development of a single system and procurement process that will allow users to move smoothly from state to state and allow states to clear transactions across state lines.

The private sector has expressed overwhelming support for a common set of operating rules and standards. Accordingly, the National Automated Clearinghouse Association formed the EBT Council, a not-for-profit voluntary association of all EBT stakeholders, such as financial institutions, electronic funds transfer networks, retail merchants, trade associations, and federal and state agencies.

In April 1996, the EBT Council approved the QUEST EBT Operating Rules, laying the foundation for a national, commercially compatible EBT program for all private sector participants.² Recipients of government benefits will be able to use their QUEST cards at any ATM or point-of-sale terminal in the country that displays the QUEST logo. For the private sector, the QUEST rules establish uniform roles, responsibilities, and business processes for all participants in national EBT.

Make EBT Happen and Save Money. The EBT Task Force report set the goal of national EBT operations by 1999. To date, 43 states are either operating EBT systems or have made contract awards with a service vendor.³ The remaining states are involved in planning for EBT implementation. The federal and state governments have made nationwide EBT by 1999 a reality. The transformation from a paper-based to an electronic benefit transfer system would convert $111 billion annually⁴ in paper-based benefit issuances -- checks, vouchers, food stamps -- to secure, streamlined electronic benefit delivery. EBT costs less than paper-based benefit delivery. For example, there are estimated to be $424 million in potential savings to be realized between 1994 and 2000 by converting to EBT.⁵

The private sector will also share these cost savings. For example, $24 billion annually in food stamps are printed, handled, and reconciled like cash but, unlike cash, are not re-circulated. Before being burned after only one use, food stamps are counted dozens of times by merchants, depository financial institutions, and the Federal Reserve. With EBT, the costs for this excess processing will no longer be passed on to the public.

NEED FOR CHANGE

In partnership, the government and private sector have built the foundation for nationwide EBT and now are focusing on national rollout of EBT systems for food stamps and simple cash payments. Initial EBT implementation has focused on the "tier one" programs involving food stamps and the programs with the least complex cash transactions -- welfare payments, social security, supplemental security income, child support, and state general assistance. The federal government should focus next on the "tier two" programs that require more complex data. Tier two programs include women, infants, and children (WIC); unemployment insurance and workman's compensation; housing and utilities subsidies; veterans benefits; and health care. Implementation of EBT for the tier two programs would more than double electronic benefit delivery from $120 billion to over $250 billion annually and address the needs of more than 30 million recipients who do not have bank accounts."Smart cards," which contain a microchip, and which are already in widespread use in Europe, are another technology, beyond the magnetic stripe used on today's EBT cards, that offer the government and EBT recipients great potential for convenience and cost savings. Several nations use smart cards as telephone cards. In Spain they are used as Social Security Cards, and in Germany smart cards are used as health and medical records.

One of the biggest advantages of EBT is its potential to reduce theft, fraud, and abuse. The U.S. Department of Agriculture (USDA) estimates the cost of $850 million annually for food stamp fraud. The American taxpayers look to their governments to end this abuse. Smart card systems can further enhance security to ensure that government benefits are used as intended. The same security capabilities can actually increase privacy, preventing unauthorized access. For example, the cards store personal data on the microchips, which are less vulnerable to counterfeiting or theft of data than cards that use magnetic stripes.

While much has been accomplished in the past two years in the effort to deploy a nationwide EBT system, more work is needed.

ACTIONS

1. Encourage EBT development and implementation consistent with the national EBT model for all states.

The Office of Management and Budget (OMB), in concert with the participating federal and state agencies, should monitor EBT progress against clear milestones, identify problems, and take actions to ensure continued progress. To support this effort, the agencies should develop an integrated plan to accomplish the implementation of EBT systems by 1999. The USDA and Treasury should develop action plans for the implementation of EBT systems consistent with the national EBT model specific to each state. In particular, the General Services Administration (GSA) should assess the circumstances in each state to determine obstacles or issues blocking rapid EBT deployment. Such detailed, integrated action plans should be in place no later than March 1997.

2. Conduct requirements analyses and develop EBT specifications for tier two programs for EBT systems integration.

Working closely with the states and the private sector, the GSA should continue the design and development activities of the EBT Task Force to expand EBT services to programs including unemployment insurance and workman's compensation, WIC, veterans benefits, housing and utilities subsidies, and health care. Systems specifications should be developed by December 1997 that can be adopted by states as common core requirements and integrated into existing or planned systems operations.

3. Demonstrate improved service delivery through enhanced card services.

The Government Information Technology Services (GITS) Board should identify an interagency task force to design a card pilot test by September 1997. The test would demonstrate the feasibility and customer acceptance of a government services card that gives the public the option to use one card to receive services from multiple agencies. The task force should include representatives from the U.S. Postal Service, Social Security Administration, Internal Revenue Service, and the Department of Veterans Affairs, and should consider frequently requested services where card-based delivery would result in significantly improved convenience for the customer and reduced cost for the agency.

ENDNOTES

^1. "From Paper to Electronics: Creating a Benefit Delivery System That Works Better & Costs Less - An Implementation Plan for Nationwide EBT. Report of the Federal Electronic Benefits Transfer Task Force," Washington, DC, May 1994.

^2. "Quest Operating Rules," April 25, 1996.

^3. "Food and Consumer Service Status Report Ending August 1996," USDA Food and Consumer Service, Washington, DC.

^4. "From Paper to Electronics: Creating a Benefit Delivery System That Works Better & Costs Less - An Implementation Plan for Nationwide EBT. Report of the Federal Electronic Benefits Transfer Task Force," Washington, DC, May 1994.

^5. Ibid., page 38.