Study: Electronic food-stamp costs lower than expected

The transaction costs associated with providing electronic food stamps to assistance recipients across state lines are lower than expected, removing a possible barrier to shifting the entire U.S. food-stamp program to electronic benefits transfer (EBT), a recently released study found.

The preliminary study sponsored by the National Automated Clearing House Association (NACHA), which represents 13,000 financial institutions, found that it would cost about $500,000 a year to cover the fees associated with processing electronic food-stamp transactions among EBT networks operated in different states. Currently, 39 states and the District of Columbia have EBT infrastructures that enable recipients to electronically receive food stamps and cash benefits.

Interoperability among EBT systems was highlighted six years ago by Vice President Al Gore's then National Performance Review. Of the states with EBT systems, about 23 states and the district now use common operating rules called Quest in an effort to provide interoperability among state systems.

However, until now, there was never a good indication of how much allowing beneficiaries to access food-stamp benefits outside their home state would cost or how often the practice might occur. "Now that we have put a figure on it, we can see how best to handle that," said David Temoshok, a General Services Administration employee and director of Access America. "Down the road, we will see the full scope of switched EBT transactions. We want to understand what we have to plan for."

Delivering food-stamp benefits electronically is cheaper for the government, said Joseph Leo, acting executive director of the Agriculture Department's Support Services Bureau and who in 1993 prepared recommendations on developing a nationwide approach to EBT. "Just to ship and store paper-based food stamps cost several million dollars," Leo said, adding that printing the coupons costs about $40 million. Currently, about 47 percent of food-stamp benefits are issued by EBT, he said.

Government and industry have been trying to estimate what interstate transactions would cost on a nationwide basis, said Melba Price, associate director for the Missouri department of social services and the chairwoman of the Southern Alliance of States. "This [NACHA figure] comes below any estimate anyone has put forward, but this [estimate] is based on realism. It's finally something someone can validate."

The NACHA study looked at food-stamp and cash EBT transaction data from April 1 to May 31 in the states following the Quest rules. The study estimates that about 5.5 million interstate EBT transactions a year would occur if every household that receives food stamps receives its benefits electronically. In addition, the study found that only 1.3 percent of EBT food-stamp transactions are interstate transactions.

The next step is to decide who will cover the annual costs of interstate transactions. Price said it should be the federal government. "It shouldn't be us who pays for interstate transaction fees. That's the national view of the food-stamp program," Price said, adding that it would take legislation to enable the USDA, which operates the food stamp program, to cover those costs. It is clear, however, that interoperable interstate transactions are something that states will need to do in the future, she said.

There are issues besides cost that must be considered, said Chris McKinnon, program manager at the Western Governors Association. "It's a welcome study, but cost is only part of the equation," he said. "You have to deal with different jurisdictions and try to coordinate among the states."

The final report is expected after the end of the study period on Sept. 30.