Indiana's nearly 2-year-old experiment with a privatized welfare system appears to be failing.

The backlog of pending Medicaid applications has ballooned in counties where welfare is handled by private contractors. From May 2008 - after the most recent wave of counties joined the new system - to December 2008, pending cases increased 86 percent. In counties working under the old system, the backlog increased only 16 percent, according to a Journal Gazette analysis of state data.

And the contractors, led by IBM Corp., missed deadlines for processing Medicaid applications at twice the rate of counties that haven't joined the new system.

In December, nearly 60 percent of applications processed under the new system were overdue.

Advocates say the backlog represents not only administrative disarray but also needy Hoosiers who are getting sicker as they await medical care.

No new counties have been brought into the system since May 2008 because of problems so critical the state's Family and Social Services Administration announced Tuesday that IBM Corp. must show how it's going to improve. If the state isn't satisfied with IBM's plan to fix he system, it could end its 10-year, $1.16 billion contract.

The problems with Medicaid mirror issues the contractors have in processing food stamp requests. Last year, Indiana ranked among the five worst states in improper denials or terminations of food stamp benefits. In April, The Journal Gazette revealed that during the final quarter of 2008, the FSSA failed to process almost a third of food stamp applications within its goal of two months, the slowest processing time since the state privatized some counties.

IBM spokesman John Buscemi declined to answer specific questions related to the problems.

"IBM is working closely with the state to implement the (corrective) action plan in an aggressive manner," Buscemi said in a written statement.

Gov. Mitch Daniels, a champion of the privatization effort, was on vacation last week and was unavailable to comment.

His spokeswoman, Jane Jankowski, said talk of scrapping the contract is premature and that the governor and his administration have been collaborating with the vendors behind the scenes for months.

"Our focus is making this project work," she said. "FSSA has been working with the contractors all along. We've been working with IBM on improvements."

FSSA Secretary Anne Murphy declined repeated requests last week for a telephone interview, and spokesman Marcus Barlow said the agency would not respond to questions about the data.

Instead, Barlow referred to a statement the FSSA made last week that said the state's increase in people seeking assistance is because of the recession.

As part of its plan to improve the system, the private vendors have hired 350 additional staff members and are revamping their training and management practices to improve client service, the statement said.

Medicaid is a federal-state program to help low-income, elderly or people with disabilities and families with children pay for health care. Depending on the case, Indiana has 45 days or 90 days to determine eligibility under federal standards. The federal government reimburses a percentage of the state's expenses.

Indiana's new system eliminates caseworkers assigned to clients. Instead, employees working for private vendors handle applications submitted through a Web site and call center based in Marion. IBM contracted with Affiliated Computer Services to oversee the call center.

Since the system began in October 2007, 59 of the state's 92 counties have been converted. Counties in the central and northwest parts of the state remain under the old system.

But almost as soon as the new program began rolling out, critics argued the changes did more harm than good.

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