IX. Employment Network Revenue and Costs

A well-functioning TTW market requires incentives that encourage EN participation. An EN’s willingness to provide services depends on the financial return from serving beneficiaries; that is, nonprofit providers must be able to cover the cost of services while for-profit ENs will expect at least a small positive rate of return. The second evaluation report included analyses based on actual payment data showing that, under the existing TTW payment system, ENs generally did not receive sufficient payments during the first two years following Ticket assignment to cover the cost of services (Thornton et al. 2006). In general, ENs generated revenue from relatively few of the beneficiaries who assigned Tickets, and the revenue was insufficient to offset the typical costs of serving those beneficiaries as well as the costs of outreach, intake, payment processing, and services for beneficiaries who did not generate any payments. In order to break even on their TTW operations, the report noted that ENs would have to generate substantial additional revenue beyond that received during the first year after assignment.

SSA carefully examined the results of the first TTW evaluation report, which found low EN participation and disclosed that participating ENs reported losing money on TTW operations. In response to these findings and advice from two expert panels, SSA has proposed program changes that are designed to increase the financial incentive for service providers to participate in the program. This chapter reviews the typical costs faced by ENs under the existing TTW program, describes the new regulations, and then uses monthly earnings data from an early cohort of SSI recipients who assigned their Ticket to an EN to show how the new regulations are likely to influence EN behavior.

The analysis in this chapter presents several scenarios under the new regulations whereby ENs can earn revenue sufficient to cover costs. For example, the new regulations allow ENs to accept Tickets from TTW participants who received employment services from an SVRA under the cost reimbursement system. In doing so, they will be able to reduce the upfront costs for outreach, screening, and employment services, focus on providing ongoing support services necessary for TTW participants to maintain employment, and thereby improve their chances of breaking even under the program. In addition, the new regulations increase the amount of payments as well as the probability that payments will be made early in the employment process. They also allow for ENs to receive any unclaimed milestone payments as a lump sum if the EN successfully transitions a TTW participant to outcome payment status before receiving all possible milestone payments. ENs able to increase the percentage of people engaging in work activities and ENs able to help beneficiaries work at levels that rapidly generate outcome payments could earn a profit under the new regulations.

Nevertheless, the analysis suggests that TTW provides, at best, only weak financial incentives for ENs to participate. Even with the proposed payment changes, it seems that ENs delivering even a modest level of service are likely to be operating at a substantial deficit two years after Ticket assignment unless beneficiaries generate much more revenue under the new system than occurred during the early stages of the current system. The lack of any quick return and the uncertainty over subsequent long-term revenue seems likely to discourage EN participation. ENs that do participate are likely to look for ways to keep costs very low for serving TTW participants or to rely on other revenue streams to subsidize their TTW efforts. They are also likely to direct their efforts to beneficiaries who have relatively low service needs, who are likely to move quickly to outcome payments, or who have been placed into jobs by an SVRA under the traditional payment system. All of these options are likely to keep overall TTW participation relatively low.

The analysis also indicates that, even though the proposed changes to the TTW payment rules are designed to reduce differences in EN payments for SSI and DI beneficiaries, the ENs are still likely to focus disproportionately on DI beneficiaries. We find that the DI beneficiaries continue be more likely to generate more revenue than SSI recipients. Based on the employment patterns observed under the current system, the change to the proposed new payment system would mean that DI beneficiaries would be about 50 percent more likely to work at levels that result in EN payments compared with SSI beneficiaries and that ENs would receive higher milestone payments for serving DI beneficiaries than for SSI beneficiaries.

This chapter begins by describing the framework used to estimate costs and revenues in the second TTW evaluation report. It then describes the new regulations and scenarios whereby ENs can break even under the regulations. It concludes with an analysis of the likelihood that ENs, based on their behavior under the existing TTW regulations, will break even.

A. EN Financial Perspective Under Current Regulations

In the second evaluation report, we used administrative data on TTW payments, information from interviews with 29 ENs, and published information on the costs of employment support services to assess whether ENs were likely to generate a net financial surplus in TTW. We found that ENs that tried to provide a reasonable service package and relied only on TTW revenue to fund their operations would incur a net loss of up to $2,300 per Ticket accepted over the first two years after assignment. Furthermore, the prospects of recovering the initial net cost seemed poor. A dramatic change in beneficiary behavior would have to occur for ENs to overcome the deficit. More specifically, we estimate that for an EN to be profitable it must generate, on average, 10 to 22 payments for every beneficiary assigning a Ticket. However, fewer than 15 percent of all beneficiaries generated any payment in the first two years after assignment, and those beneficiaries generated only about nine payments each during the two years.

This subsection summarizes the assumptions and data underlying these findings. It discusses our basic framework for considering costs, describes the key payment data used to estimate EN revenue, and summarizes our earlier revenue and cost estimates. As a check on our estimates and methods, we asked several providers to review our work. In light of their experience, they thought that the estimates and general conclusions were reasonable. Furthermore, we tested the sensitivity of our conclusions to changes in our underlying assumptions and estimates and found that even a substantial change in our estimates of average costs (even if they could be reduced by more than 50 percent) would not change the main conclusions about EN financial incentives under the existing TTW regulations.

1. Framework for Calculating EN Costs

EN costs stem from five major activities: (1) outreach, (2) intake, (3) initial services, (4) follow-up services, and (5) payment tracking. Outreach covers efforts to generate a flow of potentially interested clients. At the simplest level, outreach activities may include answering telephone calls from beneficiaries who receive Tickets and want more information. Beyond that, ENs may develop a Web site, make presentations to groups that include or advise beneficiaries, or work with their SVRA or other referral sources.

For beneficiaries who do express an interest in assigning their Ticket, the EN conducts an intake assessment to determine whether it wants to accept the Ticket and provides prospective beneficiaries with the information they need to decide whether to assign their Ticket to the given EN. When beneficiaries decide to assign their Ticket, the EN must develop an IWP and submit it to the TTW Program Manager.

Once a Ticket is assigned, ENs help beneficiaries find a job in which they can earn enough money to generate milestone or outcome payments. EN assistance extends to a variety of services, including job search and placement, training, counseling, and case management. In addition, some ENs may provide financial incentives for employment and retention. The intensity and number of services vary within and across ENs according to beneficiary needs and interests. However, all ENs provide some level of service for beneficiaries who do not go on to work at a level that generates a payment.

For those beneficiaries who work enough to generate a payment, the EN incurs other costs for providing additional counseling or support services that the individual may need to retain his or her job. Furthermore, TTW regulations require ENs to submit pay stubs to the Program Manager as part of the request for payment so that the SSA can verify that beneficiaries left the rolls because of work. Therefore, in addition to any ongoing support services, ENs must obtain pay stubs and collaborate with the Program Manager to ensure that all requirements are met so that payment is received without significant delay.

Drawing on available published data and interviews that we conducted with 29 ENs, we estimated the costs for each of the five activities. The second evaluation report (Thornton et al. 2006) presents full details of the estimates. Here we present a brief summary of the costs:

• Outreach and Intake Costs (activities 1 and 2). Based on our interviews with ENs, we estimate that outreach and intake activities cost approximately $826 per Ticket accepted.¹ Much of the cost reflects ENs’ reports that approximately 20 initial contacts and then 10 intake assessments are required to generate one assignment. We valued the staff time required for these activities on the basis of published data on the compensation of vocational rehabilitation counselors (Bureau of Labor Statistics 2003).²

• Initial Services (activity 3). We approximated the costs ENs incur to move beneficiaries into employment on the basis of expenditures that median-cost SVRAs reported to close an SSI or DI beneficiary’s case.³ Specifically, we used costs of $1,591 per Ticket assigned by DI beneficiaries and a slightly higher figure of $1,614 for SSI-only beneficiaries. The costs reflect the mix of services provided to all beneficiaries, even those who do not find work and do not generate a milestone or outcome payment.⁴ In the absence of actual data from ENs, we used these estimates to reflect the level of cost that an EN might reasonably expect to incur to assist beneficiaries to obtain employment. While ENs may choose to provide far fewer services than implied by this average cost, it nevertheless provides a basis for assessing what their financial performance would be if they tried to provide services comparable to those many SVRAs incur as they try to move beneficiaries into employment.

• Follow-Up Services (activity 4). Evidence of the cost of ongoing employment supports for Ticket recipients who have started to work is scant because few of the ENs we interviewed for the study had yet needed to provide such services. Given the low rates at which we observe beneficiaries generating payments, we estimate that follow-up services during the first two years after assignment will cost ENs $28 per DI Ticket accepted and $20 per SSI-only Ticket accepted. In the absence of hard evidence, we made an assumption of low costs and estimated that a full-time EN employee could handle the follow-up service needs of about 100 beneficiaries per year, or that about one percent of an employee’s time would be required to provide ongoing employment support for a beneficiary who had moved into employment. We further assumed that ENs would provide follow-up services only to beneficiaries who began to work and generate a milestone or outcome payment. Furthermore, given that an EN can collect up to 60 outcome payments on a beneficiary who leaves SSA benefits due to work, we assumed that services would continue until the beneficiary stopped generating outcome payments. The higher cost for the DI/concurrent group reflects the fact that ENs are slightly more likely to generate payments for that group than for the SSI group, and so are slightly more likely to need to provide ongoing employment support to the DI beneficiaries.

• Payment Paperwork and Tracking (activity 5). Early in the TTW program, ENs devoted considerable resources to collecting pay stubs and submitting payment requests. We assumed that the associated costs would decline over time as ENs gained experience and as a result of administrative changes made by SSA. We estimated that payment tracking would cost ENs $16 per DI Ticket accepted and $12 per SSI-only Ticket accepted. To formulate the estimate, we assumed that each payment (milestone-outcome or outcome only) obtained by an EN for a beneficiary would require an average of one hour of staff time.⁵

2. Provider Experience Two Years After Rollout

Based on evidence for an early cohort of TTW participants, few beneficiaries who contact an EN have actually assigned their Ticket, and the likelihood of payment within 24 months for beneficiaries who do assign their Ticket is low. Two years after assigning a Ticket, we estimate that an average EN will have spent over $2,000 more per Ticket accepted than it received in payments. Only a small fraction of assigned Tickets generated any payment in the first two years, and those that did generate a payment earned only a small number of payments, on average, within the two years following assignment. On average, data on payments made to ENs showed that each Ticket assigned by an SSI beneficiary generated only $139 in the first two years and that each Ticket assigned by a DI or concurrent beneficiary generated $365 during that period. ⁶

Looking just at the milestone-outcome payment system, we found that 15.6 percent of DI/concurrent beneficiaries and 10.9 percent of SSI-only beneficiaries generated a payment to an EN within a year of assigning a Ticket (Exhibit IX.1). Under current regulations, a beneficiary must work above the SGA level for one month before generating a milestone-outcome payment. We did not look at the EN experience with outcome only cases because the number of cases using that payment system is too small to provide sufficient data on EN and beneficiary behavior.

On average, ENs that accepted Tickets early in TTW were likely to experience a financial loss for the first two years following assignment, and, by that point, the small payment stream did not provide much encouragement for later months. To break even, ENs would have needed to generate an average of over $2,000 in additional payments per accepted Ticket-far more than they received in the first two years (Exhibit IX.2).

To generate over $2,000 per Ticket under the existing payment rules, ENs must begin to receive payments on more of the Tickets that they accept, and each Ticket must generate more payments. To estimate how many more payments would be required for an EN to break even, we calculated the net revenue provided by each payment after deducting costs for follow-up services and the paperwork required to get paid. Under the assumption that these costs are quite modest, we calculated that an EN could expect a net gain of about $100 for each additional outcome payment received for an SSI-only beneficiary and $210 for each additional outcome payment received for a DI beneficiary. To recover its net loss of over $2,000 for the first two years after assignment, an EN must therefore receive approximately 24 more payments per Ticket assigned by an SSI-only beneficiary and 10 more payments per DI Ticket—in addition to the payments already received by an EN.

To illustrate the magnitude of the change required for an EN to break even, it is instructive to consider a case where an EN generates subsequent payments only for those beneficiaries who generated a payment during the first two years. For the 17 percent of DI beneficiaries who generated a payment during the first two years, ENs would have to generate an average of 56 more payments per Ticket in order to break even. Given that 11 percent of SSI beneficiaries generated a payment during the first two years, an EN would have to collect 202 more payments for each of these Tickets to recover its service costs. The DI scenario is barely feasible because the total number of possible outcome payments is 60; the SSI scenario is clearly infeasible. Thus, based on the experience of the Ticket program in Phase 1 states during the first two years, collecting more payments only from those Tickets that generate a payment during the first two years will not suffice. ENs will have to collect payments for more of the Tickets they accept and generate more payments from each Ticket. Furthermore, if our rough approximations underestimate any of the costs (as some providers have indicated), then ENs will need to generate even more payments to offset these higher costs.

B. Proposed Regulatory Changes to EN Payment System

SSA released proposed regulations on September 30, 2005, that significantly modify TTW’s payment structure.⁷ Elements of the regulations are intended to increase the number of ENs that actively participate in TTW by addressing concerns raised by SVRA and EN officials, including SVRA requirements to accept Ticket assignments to receive payments from SSA under the cost-reimbursement system; the insufficiency of milestone payments to cover the cost of upfront services; inequities between payments for serving SSI and DI beneficiaries, and ineligibility of beneficiaries for whom medical improvement is expected.

The proposed modifications to the TTW regulations can be divided into three topic areas: (1) modifications in SVRA participation, (2) modifications to the milestone-outcome and outcome-only payment systems, and (3) eligibility for beneficiaries with a condition that is expected to medically improve. In addition, SSA posed several questions for further consideration. Each of these topics is discussed below, with emphasis on topics relevant to the payment system. Exhibit IX.3 presents a side-by-side comparison of the old versus new payment systems.

1. Modifications in SVRA Participation

Current regulations require beneficiaries to assign their Tickets to the SVRA so that the SVRA can receive payments under the traditional cost-reimbursement, milestone-outcome, or outcome only systems. Under the proposed changes, the SVRA must still accept a Ticket if the agency wishes to be paid under one of the new payment systems, but it need not accept the beneficiary’s Ticket to receive payments under the traditional payment system. The purpose of the change is to allow the SVRA to deliver to beneficiaries needed assessment, training, and rehabilitation services that may be too costly for the EN to provide. The beneficiary may then choose to assign his or her Ticket to an EN to provide post-employment follow-up services, thus receiving services first from an SVRA and then from an EN. For example, the SVRA could provide initial, intensive rehabilitation services, and an EN could follow up by providing the ongoing support many individuals, particularly those with psychiatric and cognitive impairments, need to maintain employment. The Ticket can be assigned to an EN within 90 days after the SVRA ceases to provide services. The beneficiary’s Ticket is considered to be “in use,” and the beneficiary will be afforded protection from the initiation of a CDR while receiving services from the SVRA, even though the beneficiary has not assigned a Ticket.

2. Modifications to Milestone-Outcome and Outcome Only Payments

SSA is proposing a payment system that parallels the steps beneficiaries take toward achieving self-sufficiency. The proposed regulations are designed to (1) increase overall funding; (2) reduce the differential between milestone-outcome and outcome-only payments; (3) equalize funding for DI and SSI beneficiaries; (4) increase milestone-outcome payments; and (5) provide a shorter time frame for payments to ENs serving DI beneficiaries. The proposed milestone-outcome payment system consists of three phases (which have no relation to the phases used to roll out TTW):

1. Phase 1 represents beneficiaries’ initial efforts at employment and is modeled on the trial work period provided for DI beneficiaries. It consists of four milestone payments of $1,042 (totaling $4,168 in 2005 for both SSI and DI beneficiaries) that are paid when the beneficiary meets each of the following earnings levels for the first time: (1) earnings over a two-week period that exceed half of a trial work period’s monthly earnings (i.e., $295 in 2005); (2) monthly earnings that exceed the trial work period’s earnings (i.e., $595 per month) for three months; (3) monthly earnings that exceed the trial work period’s earnings for six months; and (4) monthly earnings that exceed the trial work period’s earnings for nine months.⁸ Phase 1 payments will not be made to an EN for a beneficiary who has received services from an SVRA that receives payments under the traditional payment system for that beneficiary.

2. Phase 2 represents a significant additional step toward self-sufficiency with increased earnings. Phase 2 milestone payments are made when beneficiaries’ monthly gross earnings exceed the SGA level ($830 for 2005), with gross earnings before adjustments used to encourage the use of work incentives during Phase 2. Payments of $184 for SSI beneficiaries can be paid for 18 months; payments of $313 for DI beneficiaries will be paid over 11 months, reflecting DI beneficiaries’ additional work experience before entering the rolls.

3. Phase 3 is the outcome payment period when ENs provide services to support retention of employment after the beneficiary leaves the SSA rolls. Outcome payments are made for DI beneficiaries for 36 months and for SSI beneficiaries for over 60 months, providing the additional effect of roughly equalizing total Ticket payments for SSI and DI beneficiaries. In addition, once a beneficiary generates an outcome payment, a lump-sum payment can be made for any remaining Phase 1 and Phase 2 milestone payments that have not yet been generated at the point that the beneficiary leaves the benefit rolls

The proposed rules will increase the overall amount of money available per Ticket and reduce the differences in payment amounts between SSI and DI beneficiaries. Providers will receive $8,159 more in total payments for SSI recipients, and $1,177 more for DI beneficiaries, if they manage to help a beneficiary move to zero cash benefit status for work and then stay in that status for a period long enough to receive all the milestone and outcome payments. Exhibit IX.3 compares payment values for the milestone-outcome system under the existing and proposed payment regulations.

The outcome only payment system is also changed by the new rules. The current system sets total payments equal to 40 percent of the average benefits that would have been paid to a DI or SSI beneficiary during the five year period over which TTW outcome payments would have been made. The new system raises the monthly payment to 67 percent of the average benefit, keeps the number of possible payments the same for SSI beneficiaries, and reduces the number of possible payments to 36 for DI beneficiaries. The total amount of payments for the two groups is almost the same under the new rules because the average monthly benefit is higher for DI beneficiaries compared to SSI beneficiaries. For both groups, the total payment amount is higher under the new rules.

3. Expanding TTW Eligibility

The proposed regulations extend Ticket eligibility to individuals for whom medical improvement is expected (MIE) and who have not had their first CDR. This change increases the pool of eligible beneficiaries by about 60,000 persons, or less than one percent of the total population of TTW eligibles.⁹ In addition, the group may be particularly attractive to ENs because the affected individuals have a higher-than-average probability of returning to substantial gainful activity and therefore to generate payments for an EN. MIE beneficiaries also have greater incentives to participate because they face a higher probability of losing medical eligibility due to medical improvement. The proposed rule changes did not extend eligibility to 16- and 17-year -olds, as recommended by the Ticket to Work and Work Incentives Improvement Act Advisory Panel.

C. Possible Effects of Proposed Regulatory Changes

The proposed changes to the TTW regulations would make it easier for an EN to receive a payment on behalf of a TTW beneficiary and would allow ENs to receive some payments earlier in a beneficiary’s transition to working at the SGA level. Furthermore, the proposed regulations would allow ENs to accept Tickets from beneficiaries for whom an SVRA received payments under the traditional payment system. Thus, ENs could reduce employment service costs, focus on the provision of follow-up services, and potentially improve a beneficiary’s chances of leaving the rolls. However, in this instance, ENs would not be eligible for Phase 1 milestone-outcome payments. This section expands on the second TTW evaluation report to explore how EN costs and revenues might change under the proposed regulations.

1. Scenarios Where ENs Could Generate Profits

Given our cost assumptions, it appears that the key to an EN’s financial success is to generate an average of $2,500 in payments for each Ticket accepted or to cut costs substantially below the amounts we have shown. In addition, it may be important for the ENs to break even quickly. Many ENs are small providers and may not have the luxury of operating at a deficit for several years while waiting for TTW payments to catch up with costs (currently TTW payments can be stretched over 60 months). In the following scenarios, we abstract from the issue of the timing of payments to identify ways ENs might be able to break even under the proposed new TTW payment system.

On the revenue side, two factors determine how much revenue an EN may expect to collect on accepted Tickets. The first factor is the percentage of beneficiaries with assigned Tickets who then engage in sufficient work to generate a payment to the EN. The second factor is the number and types (milestone or outcome) of payments that the EN collects for each Ticket participant. On the cost side, the major consideration is the cost of the services required to move a beneficiary into substantial employment, but the intake costs and costs associated with the payment paperwork can also be important.

Given these key revenue and cost factors, some possible ways for an EN to break even under the new regulations follow:

• An EN could break even if it expected to generate all four Phase 1 milestone payments for nearly 60 percent of the Tickets it accepted.

• An EN that served only DI beneficiaries could generate revenue per Ticket accepted of $2,377 if it enabled 30 percent of those beneficiaries to work enough to move off cash benefits ($7,923 times 30 percent). This is almost enough to break even, and an EN would cover all of its costs if it could generate just a few outcome payments for those beneficiaries. Payments for SSI-only beneficiaries would be slightly lower, but ENs that serve only those beneficiaries could still break even if they could move at least 30 percent of the beneficiaries off of cash benefits.

• An EN could break even under a variety of hybrid scenarios whereby it receives Phase 1 milestone-outcome payments for some beneficiaries and outcome only payments along with the associated lump-sum milestone payment for others. For example, an EN would receive revenues of more than $2,500 per SSI Ticket accepted if:

  • One-quarter of participants generated two Phase 1 milestone payments (EN earns $522 per Ticket accepted)

  • An additional 20 percent of participants generated all Phase 1 milestone payments and six Phase 2 milestone payments (EN earns $1,054 per Ticket accepted)

  • An additional 10 percent of participants left the rolls and generated the full milestone payments and 12 outcome payments (EN earns $969 per Ticket accepted)

• An EN could figure out what would be required to break even under other hybrid scenarios by taking the sum of the percentage of cases for which the EN expects to generate a particular payment multiplied by the size of the payment. If the sum is greater than or equal to the estimated cost, then the EN either breaks even or makes a profit; if not, the EN takes a loss.

• An EN could break even by reducing service costs and increasing revenue per Ticket accepted by focusing on beneficiaries that had already been placed in jobs by an SVRA. Such beneficiaries would require fewer services, on average, than beneficiaries who had not already been placed and would be more likely to generate a payment to their EN because the beneficiaries are already employed. While the EN would not be eligible to collect Phase 1 milestone payments on these Tickets, it would need to collect an average of only five Phase 2 milestone payments from each accepted Ticket of this type in order to break even.

2. Likelihood of an EN Breaking Even Without Additional Changes in Beneficiary Behavior

To assess the likelihood of an EN breaking even, we first estimate how the new rules would change revenue if beneficiary behavior continued to be what we observed early in the TTW rollout. But, because changes in beneficiary behavior is the ultimate goal of the new regulations, the new regulations are intended to give ENs the resources they need to help greater numbers of beneficiaries reach more successful outcomes. We therefore assess the type of changes in behavior that would be necessary for an EN to break even under the new regulations.

We cannot use the available payment data to estimate payments under the new system because it provides payments for beneficiaries that are earning too little to generate a payment in the current system. Thus, the new rules should generate more payments to ENs even if there are no changes in beneficiary behavior. To assess the new rules, we use monthly earnings data from the Supplemental Security Record (SSR) on a cohort of SSI recipients who assigned their Ticket to an EN. We follow the cohort over a 24-month period and estimate the milestone and outcome payments that would have been paid under then new regulations assuming that beneficiaries continued to behave as they do under the current system. We then use the estimates to assess the types of behavior change, if any, that are necessary for an EN at least to break even.

Reliable monthly earnings data on DI beneficiaries are not available in the SSA data extracts used in the evaluation; therefore, we are unable to use earnings data on DI TTW participants for the analysis. However, the analysis of TTW payment data showed that the percentage of DI beneficiaries who worked at a level resulting in an EN payment was 43 percent higher than the comparable percentage for SSI recipients. To approximate the revenue that would result under the new regulations in the case of no behavior change among DI beneficiaries, we simply multiply by 1.43 the percentage of SSI recipients who both assigned their Ticket and produced a milestone or outcome payment. We then use the estimates to assess the types of behavior change, if any, that are necessary for an EN at least to break even under the new rules.¹⁰

Exhibit IX.4 shows the percentage of SSI participants with earnings that would result in a payment had the new rules been in place at the time. It also shows the average number of months after assignment that each payment would have occurred. The estimates show that 32.0 and 13.3 percent of participants would have generated, respectively, Phase 1 and Phase 2 milestone payments. On average, these Tickets would have begun generating Phase 2 milestones within 16 months of assignment, and many beneficiaries who earned a Phase 2 milestone payment would have generated an additional milestone payment in subsequent months.

In Exhibit IX.4, the far right column shows the revenues that an EN would receive if the new milestone-outcome system rules were applied to the cohort’s work behavior. The average revenue of $1,097 per Ticket is not sufficient to cover the estimated cost of services of about $2,500 for the 24 months following Ticket assignment. This suggests that either ENs must generate substantial future payments from Tickets or must induce a greater change in the short-term beneficiary behavior in order to break even.

The analysis of DI Ticket assignees is based on data on the percentage of SSI Ticket participants with earnings resulting in each milestone-outcome payment, data suggesting that DI Ticket assignees are 43 percent more likely to work at a level that results in a payment as compared with SSI recipients, and the higher monthly milestone-outcome payments for DI beneficiaries.¹¹ Phase 2 milestones are paid for only an 11-month period, at which time beneficiaries enter the outcome payment phase. We assume that those with earnings above SGA would be eligible for outcome payments after the 11 Phase 2 payments. We therefore add the first four outcome phase payments to finish out the 24-month period. Exhibit IX.5 shows the results of applying the new rules to the estimates of work behavior for a cohort of DI Ticket assignees under the existing rules. The increase in work behavior and the larger Phase 2 monthly milestone payments result in greater revenue for DI Ticket assignees as compared with SSI Ticket assignees. The last column of Exhibit IX.5 shows the revenue resulting from simply changing the payment rules, and the last row shows that, if behavior were unchanged for the cohort, the resulting revenue would be $1,761 per DI Ticket assignee over the 24-month period.

Similar to what we observed for SSI beneficiaries, during the 24 months after Ticket assignment, the total expected revenue doesn’t cover the EN’s total costs. While serving DI beneficiaries may result in higher EN revenues than serving SSI beneficiaries because of both higher payment values and the higher likelihood that a beneficiary will generate a payment, the revenues do not, on average, offset the service and operating costs incurred by an EN. Therefore, it will take additional revenue after the 24-month period or a combination of lower costs and higher revenue during that period to enable an EN to break even.

Exhibit IX.6 provides a hypothetical description of the percentage of costs covered by revenue at specific steps within the proposed milestone-outcome payment process, based on work behavior under the existing rules. For example, the revenue from the first Phase 1 milestone payment from SSI recipients covers, on average, 40 percent of intake costs, 14 percent of intake and employment service costs, and 13 percent of total costs. At the end of the 24-month period, ENs that serve SSI TTW participants may break even by reducing costs to 44 percent of the level used in our analysis (approximately $1,600 per Ticket assigned), increasing revenue by 2.3 times the observed 24-month level, or some combination of reducing costs and increasing revenues. ENs that serve DI TTW participants require somewhat smaller changes in behavior to break even. At the end of the 24-month period, ENs that serve DI TTW participants may break even by reducing costs to 72 percent, increasing revenue by 1.4 times the observed 24-month level, or some combination of reducing costs and increasing revenue.

An important limitation of this analysis is that it only examines the first two years after assignment for an early cohort, and therefore is an incomplete picture of the total revenues ENs might expect. We use an approach to estimate the number of additional payments that would be required for an EN to break even similar to that employed in the second TTW report (Thornton et al. 2006). We assume that most payments after the 24-month period would be phase two milestones or outcome payments and that it would cost the EN about $60 per payment to provide ongoing employment support and to process each payment, resulting in a net payment amount of $253 per month for a DI beneficiary and $124 per month for a SSI recipient. To break even, an EN serving DI beneficiaries would have to receive about 14 additional payments from the 19.1 percent of assignees who we estimate earned enough to produce at least one of the phase two milestone payments within the two-year period. An EN serving SSI recipients would have to receive about 84 additional payments from the 13.3 percent of assignees who earned enough to produce at least one phase 2 milestone, which is more than the number permitted under the proposed payment system. Thus, a straightforward projection of the experience to date suggests that an EN serving DI beneficiaries can potentially break even after the two year period, but that it isn’t possible for an EN serving SSI recipients to break even without large changes in beneficiary behavior, EN behavior, or both.

After examining SSI beneficiary earnings behavior in the SSA administrative data and making some assumptions of probable payments to be generated by DI beneficiaries, we can now return to the above scenarios that could result in EN profitability and explore whether a provider could reasonably expect the scenarios to occur.

Generating Four Phase 1 Milestones for Nearly 60 Percent of Tickets. This scenario seems difficult to achieve given the experience of the early SSI cohort, whereby fewer than a third of the cohort earned enough to generate even one Phase 1 milestone. Even for DI beneficiaries, about half of whom we would expect to generate the first Phase 1 milestone, the likelihood of each successive Phase 1 milestone declines substantially.

Moving 30 Percent of Participants into the Outcome Payment Phase. This scenario requires ENs to move participants into outcome payment status quickly and collect the lump-sum milestone payment. For SSI participants, a substantial change in behavior would be necessary given that only 13 percent of SSI Tickets in the early cohort would have generated at least one Phase 2 milestone. In addition, each successive milestone after the first in Phase 2 is less likely to occur within two years of assignment. For DI participants, the scenario is somewhat more plausible. Our estimates show that about 19 percent of participants would reach a Phase 2 milestone. To collect the total value of all milestones, ENs would have to take additional measures to ensure that beneficiaries move to zero cash benefits quickly. The cost of the additional measures is unknown, making it unclear whether such costs will be offset by additional revenues.

Moving Some Beneficiaries to Outcome Payments and Receiving Milestone Payments from Others per the Hybrid Scenario. The hybrid scenario outlined above requires 25 percent of beneficiaries to generate two Phase 1 milestone payments, an additional 25 percent to generate all four Phase 1 milestone payments and six Phase 2 milestone payments, and an additional 10 percent to generate 12 outcome payments. The earnings data we have for beneficiaries do not allow us to make exact calculations about the likelihood that a beneficiary will leave the SSA rolls.

However, with the assumptions we have used to create a rough estimate of the probability of payment, the hybrid scenario seems possible for DI beneficiaries. Our estimates show that more than 45 percent would generate at least one milestone payment, 22 percent would generate all four milestone payments, and about five percent would generate 11 months of Phase 2 milestone payments. It is possible that some of the Phase 2 milestone payments could become outcome payments with relatively small changes in earnings. Thus, the changes in behavior necessary for an EN to break even appear quite modest.

For SSI beneficiaries, a larger change in EN services, in beneficiary behavior, or in some combination of both would be required for ENs to break even. If the change in EN services results in increased service costs, then even greater changes in behavior may be necessary for an EN to break even.

Other Hybrid Scenarios. To determine what would be required for an EN to break even, the EN can set targets for certain types of payment types and then calculate the percentage of other types of payments needed to break even. For example, suppose that an EN serving SSI recipients is confident that it can move 20 percent of accepted Ticket holders to outcome payments. The EN wants to know how many other beneficiaries it would have to place into employment to yield at least four milestones, thereby permitting the EN to break even. If the cost of services per participant is $2,454, then break even requires the following:

• [Percentage all four Milestones x ($4,168)]+[20% x ($7,480)]=$2,454

The equation implies that if at least another 24 percent of beneficiaries achieved all four milestone payments, the EN would break even. Exhibit IX.4 shows that the work behavior of the cohort of SSI recipients who assigned their Ticket is not sufficient to meet these targets within 24 months of assignment. Thus, to break even in this period, the EN must increase the work behavior of beneficiaries or select a mix of beneficiaries likely to reach these targets.

Accepting Tickets Only from Beneficiaries Placed in Jobs by SVRAs. This scenario would be a new type of EN behavior that is possible under the new regulations but impossible under the existing regulations. It is not possible to predict precisely how the modification would affect the behavior of ENs or beneficiaries. However, if ENs accept Tickets from beneficiaries who already hold jobs, the likelihood is high that each accepted Ticket will generate a payment and that EN initial-service costs will be low. In this scenario, an EN that expects to collect payments sufficient to offset its costs must create a service environment that supports most beneficiaries remaining in jobs and moving to zero cash benefits.

If the beneficiary first works with an SVRA to obtain job training and placement services and then goes to an EN for follow-up services, an EN might expect fewer costs associated with serving such a beneficiary. The EN would incur no initial service costs for working with the beneficiary but would still need staff for intake, follow-up services, and payment tracking. If we eliminate the initial service costs we calculated in our analysis for the previous report and reduce the intake costs by half, we would predict that an EN would incur more than $400 to take a Ticket from a beneficiary and track and process his or her payments.

The observed employment patterns suggest that the proposed new rules can enable an EN to generate a profit if it served DI beneficiaries who had been placed into jobs by a SVRA. While the new rules prevent an EN from collecting Phase 1 milestones from these Tickets, it appears possible to cover an average cost of $400 with only three Phase 2 milestones if all or nearly all beneficiaries who assign Tickets to an EN generate these milestones. However, serving SSI beneficiaries for whom the value of Phase 2 payments and outcome payments is lower may not have similar results. An EN seeking to serve both SSI and DI beneficiaries may, however, be able to earn a profit by accepting Tickets from both SSI and DI beneficiaries who have received SVRA services, with the hope that, after two years, the returns to serving DI beneficiaries will offset the small losses on SSI beneficiaries.

D. Conclusion

The scenarios above indicate that the proposed revisions to the TTW payment system may make it possible for certain types of ENs serving some types of beneficiaries to cover their costs. Increased payment values, payments sooner after a beneficiary begins working, and the flexibility to collaborate with an SVRA when serving clients all mean that the proposed payment system represents an improved business option for some providers. However, other providers may find it difficult to change their package of services or client mix in a way that permits their work as an EN to be profitable. ENs serving beneficiaries similar to the early cohort of Ticket assignees, for example, may find that, while their financial outlook would improve over the current payment system, short-term deficits still pose a challenge.

¹ Cost and revenue estimates used in this chapter have been converted to July 2005 dollars using the Consumer Price Index for urban workers, CPI-W (Bureau of Labor Statistics. Consumer Price Index for Urban Wage Earners and Clerical Workers, http://data.bls.gov/cgi-bin/surveymost?cw). The estimates in TTW evaluation report 2 are in 2004 dollars. (back)

² This hourly wage represents salary only and was multiplied by 1.61 to account for fringe benefits, supplies, and supervisory time. The adjustment factor comes from a detailed cost study performed by staff of the Minnesota State Partnership Initiative project (Minnesota Work Incentives Connection 2003). Application of the factor yielded an inflation-adjusted estimate of $22.34 per hour for labor. (back)

³ We determined the median cost of closing a case for non-blind beneficiaries in each SVRA and then used the median of those median costs to approximate the cost an EN would incur to assist a beneficiary. For SSI cases, median-cost SVRAs were Tennessee and Colorado. For DI cases, median-cost SVRAs were Oregon and New York. (back)

⁴ These tabulations are based on an analysis of inflation-adjusted FY2002 RSA 911 data on service costs for closed cases in which beneficiaries had signed an Individualized Plan for Employment. (back)

⁵ Given the analysis in Chapter XII, the payment paperwork and tracking costs may appear to be low. However, it is important to note that we are averaging the costs across all persons who assigned a Ticket and that the costs are primarily incurred for the relatively small portion of Tickets that generate a payment. Thus, the estimate averages over many who assigned a Ticket but never work at a level that triggers an EN payment. (back)

⁶ The estimates in Exhibit IX.1 use the CPI-W to adjust the values to July 2005 dollars; this is the only difference between the estimates in this report and those in the second TTW evaluation report. The use of 2005 dollars permits us to make comparisons to the newly proposed regulations, which are based on 2005 dollar values. Outcome payments under the milestone-outcome system depend on the number of milestones a beneficiary reaches. (back)

⁷ 20 CFR Part 411, Federal Register, vol. 70, no. 189, Friday, September 30, 2005. (back)

⁸ The proposed regulations were issued in September 2005 and reflect the trial work period and substantial gainful activity levels in effect at that time. (back)

⁹ The estimate of 60,000 persons is for 1999 and from a 2001 letter from the Ticket to Work and Work Incentives Advisory Panel to the acting commissioner of Social Security. The letter is available at http://www.dimenet.com/dpolicy/archive.php?mode=N&id=526, accessed September 1, 2006. (back)

¹⁰ The estimates assume that each person goes through each milestone-outcome payment sequentially (i.e., no movement directly to outcome only payments). (back)

¹¹ An alternative assumption is that these persons use impairment-related work expenses (IRWEs) or subsidies so that their countable monthly earnings fall below SGA. Under this assumption, simply subtract the subtotal of outcome payments from the total payments value. (back)