IX. Employment Networks' Revenues and Costs

A well-functioning TTW market requires incentives that encourage EN participation. In turn, an EN’s willingness to participate depends on the financial return it gets from investing in, or serving, beneficiaries; that is, not-for-profit providers must be able to cover the cost of services while for-profit ENs expect at least a small positive rate of return. In our first evaluation report (Thornton et al. 2004), we documented low EN participation and noted that participating ENs were losing money on TTW operations. The second evaluation report (Thornton et al. 2006) documented analyses based on actual payment data showing that, under the traditional payment system, ENs generally did not receive enough payments to cover the cost of services during the first two years after Ticket assignment. In general, ENs generated revenue from relatively few of the beneficiaries who assigned Tickets, and the revenue was not enough to offset either the typical costs of serving these beneficiaries or the costs of outreach, intake, payment processing, and services for beneficiaries who did not generate any payments. The report noted that, to break even on their TTW operations, ENs would have to generate substantially more revenue beyond that received during the first two years after Ticket assignment.

In response to these findings, SSA developed program changes designed to increase the financial incentive for providers—both ENs and SVRAs—to accept assignments and deliver services under the new payment systems. These changes were issued as final rules in May 2008. We analyzed the likely effects of SSA’s changes on the financial outlook for providers in the third TTW evaluation report (Thornton et al. 2007). We identified scenarios under the new rules that would make TTW financially attractive to providers, but concluded that financial incentives for providers to participate would remain weak if future TTW participants behaved in the same manner as the initial participant cohort. In this chapter, we update the third report analysis, using an additional year of data on the initial cohort, as well as data on a second cohort that assigned their Tickets one year later than the initial cohort.

The analysis in this chapter presents several scenarios under the new regulations whereby ENs may earn enough revenue to cover their costs. The third evaluation report included similar scenarios that are updated here to account for additional information that we now have about participant behavior.

We continue to find that, even with the new rules, TTW will provide, at best, only weak financial incentives for ENs to participate. It seems that ENs delivering a modest level of services would likely operate at a substantial deficit two years after Ticket assignment, unless beneficiaries generate much more revenue under the new payment systems than past participant cohorts. Three years after Ticket assignment, ENs operating under the revised payment system and serving SSDI beneficiaries whose employment behavior parallels what we observed in an early cohort would be able to cover their costs, but revenues would still not cover costs for services to SSI beneficiaries three years after they assigned their Ticket. The absence of any quick return and the uncertainty over subsequent long-term revenue seem likely to discourage EN participation. ENs that do participate are likely either 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 generate payments quickly, or who have already been placed in jobs by an SVRA under the traditional payment system. All of these options are likely to keep overall EN participation in TTW relatively low.

The analysis also indicates that, even though the changes to the TTW payment rules are designed to reduce differences in EN payments for SSI and SSDI beneficiaries, ENs are still likely to focus disproportionately on SSDI beneficiaries. We found that SSDI beneficiaries continue to be more likely than SSI beneficiaries to generate more revenue. Based on the employment patterns observed under the original system, we conclude that the changes to the payment system will mean that SSDI beneficiaries—as opposed to SSI beneficiaries—-will be 38 percent more likely to work at levels that result in EN payments and that ENs will receive higher milestone-outcome payments for serving SSDI beneficiaries rather than SSI beneficiaries.

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

A. EN Financial Outlook Under the Original 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 under 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 approximately $2,300 per Ticket accepted over the first two years after assignment. Furthermore, the prospects for recouping 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 who assigns a Ticket. However, less 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 section covers the assumptions and data underlying these findings and updates the previous analysis to account for an additional year of data. 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. To verify our estimates and methods, we asked several providers to review our work for the previous report. 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 ENs’ financial incentives under the original 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 website, 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-outcome or outcome-only 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 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 SSA can verify that beneficiaries left the rolls because of work. Therefore, in addition to providing 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 noted above. The second evaluation report presented the estimates in detail. Here, we summarize the costs.

• Outreach and Intake Costs. Based on our interviews with ENs, we estimate that outreach and intake activities cost approximately $826 per accepted Ticket. 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).

• Initial Services. 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 SSDI beneficiary’s case. Specifically, we used costs of $1,591 per Ticket assigned by SSDI 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 or generate a milestone-outcome or outcome-only payment. The experience of some providers suggests that the estimates may be low; we will return to this issue when we present the overall results. In the absence of data from ENs, however, we used these estimates to reflect the level of cost that an EN might reasonably expect to incur to assist beneficiaries in obtaining employment. While ENs may choose to provide far fewer services than implied by this average cost, that cost nevertheless provides a basis for assessing what the ENs’ financial performance would be if they tried to provide services comparable to those provided by many SVRAs as they try to move beneficiaries into employment.

• Follow-Up Services. Evidence on the cost of ongoing employment supports for Ticket recipients who have started to work is scant because few of the ENs we interviewed had yet needed to provide such services. Given the low rates at which we observed beneficiaries generating payments, we estimated that follow-up services during the first three years after assignment would cost ENs $53 per accepted SSDI Ticket and $36 per SSI-only accepted Ticket. In the absence of hard evidence, we assumed 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 1 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 may 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 therefore are slightly more likely to need to provide ongoing employment support to SSDI beneficiaries.

• Payment Paperwork and Tracking. 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 $30 per accepted SSDI Ticket and $21 per accepted SSI-only Ticket over three years. To formulate the $21 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.

What is noteworthy is that the costs faced by ENs are unlikely to be affected by economies of scale. That is, providers that serve more Ticket holders are unlikely to see benefits in any cost categories because these cost estimates depend on the typical costs associated with each assignment. There is no reason to expect that a larger EN, for example, would be more skilled than a smaller one in outreach services (thus reducing the resources spent on working with clients who do not ultimately assign a Ticket).

2. Provider Experience Three Years After Rollout

Based on evidence for an early cohort of TTW participants, we observed that few beneficiaries who contact an EN actually assign their Ticket and that the likelihood of payment within 36 months is low for beneficiaries who do assign their Ticket. We estimate that, three years after Ticket assignment, an average EN will have spent over $2,000 more per accepted Ticket than it received in payments. Only a small fraction of assigned Tickets generated any payment in the first two years. Those that did generate a payment earned only a small number of payments, on average, in the two years following assignment. Data on payments made to ENs show that each Ticket assigned by an SSI beneficiary generated, on average, only $180 in the first three years and that each Ticket assigned by a SSDI or concurrent beneficiary generated $489 during that period.

Looking at just the milestone-outcome payment system, we found that 16.6 percent of DI/concurrent beneficiaries and 11.8 percent of SSI-only beneficiaries generated a payment to an EN within a year of assigning a Ticket (Exhibit IX.1).8 For beneficiaries who assigned a Ticket in the second year following rollout, the share of Tickets generating payments in the first 12 months (18.6 percent) was slightly higher for SSDI participants than for the earlier cohort (16.6 percent) while the share of second-year–rollout SSI participants with a payment in the first 12 months (10.1 percent) was slightly lower than for the first cohort (11.8 percent). Nevertheless, for participants in both programs, the rate of payment generation in the second year after assignment was more similar to what was observed for the early cohort. For Tickets assigned in the third year after rollout, the rates were more similar to what was observed for the earliest cohort. Given the apparent similarity in the rate of payment for the three cohorts, this chapter focuses on the three-year experience of the earliest cohort in an effort to understand whether an additional year of revenues under the new rules would cover the EN costs discussed in the earlier evaluation reports. Under the original regulations, a beneficiary must work above the SGA level for one month before generating a milestone-outcome payment. We did not examine the EN experience with outcome-only cases because the number of cases under that payment system is too small to provide enough 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 three years following assignment, and the likelihood of a larger revenue stream in later years appears small. 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 three years (Exhibit IX.2).

To generate approximately $2,500 per Ticket under the original 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 for the paperwork required for payment. 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 SSDI beneficiary. At the end of three years, we estimate that ENs have recovered, on average, only about $500 of the $2,500 they have spent per Ticket assignment. Assuming they will net $100 per SSI payment and $210 per SSDI payment, ENs will need to collect 24 more payments per SSI assignment and 10 more payments per SSDI assignment just to recoup the $2,500 they have spent per Ticket assignment.

The number of payments needed to break even increases when service costs for the Ticket are compounded with the service costs for Tickets that never generate a payment. To illustrate the magnitude of the change required for an EN to break even, it is instructive to consider a case in which an EN generates subsequent payments only for those beneficiaries who generated a payment during the first three years. For the 19 percent of SSDI beneficiaries who generated a payment during those years, ENs would have to generate an average of 51 more payments per Ticket in order to break even. Given that 12 percent of SSI beneficiaries generated a payment during the first three years, an EN would have to collect 190 more payments for each of these Tickets to recover its service costs. The SSDI scenario is barely feasible and, 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 the higher costs.

B. Regulatory Changes to the TTW Payment Structure

On May 20, 2008, SSA issued final regulations that significantly modified TTW’s payment structure. Elements of the new regulations are intended to increase the number of ENs that actively participate in TTW by addressing concerns raised by SVRA and EN officials. These concerns include SVRA requirements to accept Ticket assignments to receive payments from SSA under the cost-reimbursement system, the fact that early milestone-outcome payments do not cover the cost of upfront services, inequities between payments for serving SSI versus SSDI beneficiaries, and ineligibility of beneficiaries for whom medical improvement is expected.

The modifications to the TTW regulations may be divided into three areas: (1) modifications to SVRA participation, (2) modifications to the milestone-outcome and outcome-only payment systems, and (3) eligibility for beneficiaries with a medical condition that is expected to improve. We discuss each topic below, emphasizing issues relevant to each payment system.

1. Modifications in SVRA Participation

The previous TTW regulations required beneficiaries to assign their Ticket to an SVRA so that the agency may receive payments under the traditional, milestone-outcome, or outcome-only payment system. Under the new rules, the SVRA must still accept a Ticket if it wants to be paid under one of the new payment systems, but it need not accept a Ticket in order to receive payments under the traditional payment system. The purpose of the change is to allow an SVRA to deliver to beneficiaries the needed assessment, training, and rehabilitation services that may be too costly for an EN to provide. The beneficiary may then choose to assign his or her Ticket to an EN, which will provide post-employment follow-up services. The beneficiary would thus receive 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 in order to remain employed. The Ticket may be assigned to an EN within 90 days after the SVRA closes the beneficiary’s case. The beneficiary’s Ticket is considered “in use” such that the beneficiary is protected from initiation of a CDR while receiving services from an SVRA even though the beneficiary has not assigned his or her Ticket.

This change seems likely to induce more cooperation between SVRAs and ENs. It might also have a significant positive effect on SSA payments for some participants.

2. Modifications to Milestone-Outcome and Outcome Only Payments

The revised milestone-outcome and outcome-only payment systems parallel the steps beneficiaries take toward achieving self-sufficiency. The new regulations are designed to (1) increase overall funding, (2) reduce the differential between milestone-outcome and outcome-only payments, (3) equalize funding for SSDI and SSI beneficiaries, (4) increase milestone-outcome revenues, and (5) shorten the payment time for ENs serving SSDI beneficiaries.

The revised milestone-outcome payment system consists of three phases:

1. Phase 1 represents beneficiaries’ initial efforts at employment and is modeled on the trial work period for SSDI beneficiaries. It consists of four milestone payments of $1,042 (totaling $4,168 in 2005 for both SSI and SSDI 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. 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 as a result of increased earnings. Phase 2 milestone payments are made when a beneficiary’s monthly gross earnings exceed SGA ($830 in 2005); gross earnings before adjustments are used to encourage the use of work incentives during Phase 2. Payments of $184 for SSI beneficiaries may be paid for 18 months; payments of $313 for SSDI beneficiaries may be paid over 11 months, reflecting SSDI beneficiaries’ additional work experience before entering the rolls. ENs who serve beneficiaries for whom an SVRA has received payments under the traditional system are eligible for Phase 2 payments, but as noted above, are not eligible for the Phase 1 payments.

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 SSDI 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 SSDI beneficiaries. In addition, once a beneficiary generates an outcome payment, a lump-sum payment may be made for any remaining Phase 1 and 2 milestone payments that have not yet been generated at the point that the beneficiary leaves the benefit rolls.

Exhibit IX.3 compares payment values for the milestone-outcome system under the original and revised payment regulations.

The new rules increase the overall amount of money available per Ticket and reduce the differences in payment amounts between SSI-only and SSDI beneficiaries. Providers will receive $8,159 more in total payments for SSI-only beneficiaries and $1,177 more for SSDI beneficiaries, if they manage to help a beneficiary move to zero cash benefit status for work and remain in that status for a period long enough to receive all the milestone and outcome payments.

The new rules also change the outcome-only payment system. The original system set total payments equal to 40 percent of the average benefits that would have been paid to a SSDI 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, retains the same number of possible payments for SSI beneficiaries, and reduces the number of possible payments to 36 for SSDI beneficiaries. The total amount of payments for the two groups is nearly the same under the new rules because the average monthly benefit is higher for SSDI beneficiaries compared to SSI beneficiaries. For both groups, the total payment amount is higher under the new rules.

3. Expanding TTW Eligibility

The new regulations extend Ticket eligibility to beneficiaries with an MIE designation and who have not had their first CDR. This change increases the pool of eligible beneficiaries by about 60,000, or less than one percent of the total population of TTW-eligibles. In addition, this group may be particularly attractive to ENs because the affected individuals have a higher-than-average probability of returning to SGA 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. About 5.3 percent of beneficiaries who receive a CDR, or about 26,000 per year, are removed from the roles due to medical improvement. MIEs account for roughly 5-10 percent of all reviews and about 10.5 percent of these reviews result in initial cessation. The new rules 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 Regulatory Changes

The changes to the TTW regulations will both make it easier for ENs to receive a payment on behalf of a TTW beneficiary and allow ENs to receive some payments earlier in a beneficiary’s transition to SGA work. Furthermore, the new regulations 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. ENs will not, however, be eligible for Phase 1 milestone-outcome payments.

This section expands on the second TTW evaluation report (Thornton et al. 2006) and updates the results from the third evaluation report (Thornton et al. 2007) by exploring how EN costs and revenues might change under the new regulations, using three years of post-Ticket assignment data. As explained in the analysis that follows, we found that some ENs may be able to cover their costs under the new payment systems if the beneficiaries they serve exhibit some of the employment behaviors that we assume, while other ENs will continue to struggle to make the program a good fiscal option.

1. Scenarios in Which 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 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 stretch 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 revised 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 (milestones or outcomes) of payments that the EN collects for each Ticket participant. On the cost side, the major consideration is the cost of 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 received all four Phase 1 milestone payments for nearly 60 percent of accepted Tickets.


• An EN that served only SSDI 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). The resultant amount 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 moved at least 30 percent of beneficiaries off 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 milestones 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 accepted Ticket by focusing on beneficiaries already placed in jobs by an SVRA. On average, such beneficiaries would require fewer services than beneficiaries not already placed and would be more likely to generate a payment to their EN because they are already employed. While the EN would not be eligible to collect Phase 1 milestone payments on these Tickets, it would break even by collecting an average of only five Phase 2 milestone payments from each accepted Ticket of this type.

2. Assessing the Likelihood of an EN Breaking Even

To assess the likelihood that an EN would break even, we first estimated how the new rules would change revenue if beneficiary behavior continued to be what we observed early in the TTW rollout. Given, however, that changes in beneficiary behavior are the ultimate goal of the new regulations, these regulations are intended to give ENs the resources they need to help more beneficiaries achieve more successful outcomes. We therefore assessed the type of changes in behavior that would be necessary for an EN to break even under the new regulations..

We could not use the available payment data to estimate payments under the new system because the new system provides payments for beneficiaries earning too little to generate a payment in the original 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 used monthly earnings data from the Supplemental Security Record (SSR) on a cohort of SSI recipients who assigned their Ticket to an EN. We followed the cohort over a 36-month period and estimated the milestone and outcome payments that would have been paid under the new regulations, assuming that beneficiaries would continue to behave as they do under the current system. We then used the estimates to assess the types of behavior changes, if any, that are necessary for an EN at least to break even.

Exhibit IX.4 shows the percentage of SSI participants with earnings that would result in a payment had the new rules been in place. It also shows the average number of months after assignment that each payment would have occurred. The estimates show that 39.0 and 18.3 percent of participants would have generated Phase 1 and 2 milestone payments, respectively. On average, these Tickets would have started to generate Phase 2 milestone payments within 13 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 (that is, the far- right column shows the product of the first two columns). The average revenue of $1,621 per Ticket is not enough to cover the estimated cost of services of about $2,500 for the 36 months following Ticket assignment. Although this situation represents an improvement over the EN’s financial position at two years after assignment (in the third evaluation report, we predicted revenue of $1,090 at 24 months), ENs are still likely to fall far short of covering their service costs for a beneficiary three years after a Ticket is assigned. This suggests that, to break even, ENs must either generate substantial future payments from Tickets or induce a greater change in short-term beneficiary behavior.

Reliable monthly earnings data on SSDI beneficiaries were not available in the SSA data extracts so we could not use earnings data on SSDI TTW participants in the analysis. However, the analysis of TTW payment data showed that the percentage of SSDI beneficiaries who worked at a level resulting in an EN payment was 40.6 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 SSDI beneficiaries, we multiplied by 1.406, the percentage of SSI recipients who both assigned their Ticket and produced a milestone or an outcome payment. We then used the estimates to assess the types of behavior change, if any, that would be necessary for an EN at least to break even under the new rules. The analysis of SSDI Ticket assignees was based on (1) the percentage of SSI Ticket participants with earnings generating each milestone-outcome payment; (2) the assumption that, compared with SSI recipients, SSDI Ticket assignees are 40.6 percent more likely to work at a level that generates a payment; and (3) the higher monthly milestone-outcome payments for SSDI beneficiaries. Phase 2 milestones are paid for 11 months only, at which time beneficiaries enter the outcome payment phase. We assumed that those with earnings above SGA would be eligible for outcome—payments after the 11 Phase 2 payments. We therefore added the first 16 outcome phase payments to finish out the 36-month period. Exhibit II.5 shows the results of applying the new rules to the estimates of work behavior for a cohort of Ticket assignees under the original rules. The increase in work behavior and the larger Phase 2 monthly milestone payments generate greater revenue for SSDI Ticket assignees compared with SSI Ticket assignees. The last column of Exhibit II.5 shows the revenue resulting from simply changing the payment rules, and the last row shows that, if behavior for the cohort did not change, the resulting revenue would be $2,718 per SSDI Ticket assignee over the 36-month period.

Unlike what we observed for SSI beneficiaries during the 36 months after Ticket assignment, the total expected revenue within three years does cover the EN’s total costs. Even though ENs serving these SSDI beneficiaries were still not covering their costs two years after assignment, it appears that the third year after assignment may be a critical turning point for providers serving such beneficiaries. This difference in what we would expect to see for SSI participants is due to both higher payment values and the higher likelihood that a beneficiary will generate a payment if he or she is receiving SSDI benefits.

Exhibit IX.6 shows the hypothetical percentage of costs covered by revenue at specific steps in the new milestone-outcome payment process, based on work behavior under the original rules. For example, the revenue from the first Phase 1 milestone payment from SSI recipients covers, on average, 49 percent of intake costs, 17 percent of intake and employment service costs, and 16 percent of total costs. At the end of the 36-month period, ENs that serve SSI TTW participants may break even by reducing costs to 66 percent of the level used in our analysis (approximately $1,600 per assigned Ticket), increasing revenue by 1.51 times the observed 36-month level or through some combination of reducing costs and increasing revenues. ENs that serve SSDI beneficiaries would not need to change their own behavior or find clients that behave differently. If beneficiary and EN behavior under the revised payment system does not differ from what was observed in the first 36 months following assignment, then ENs may realize a 9 percent rate of return on services to SSDI beneficiaries. However, it is important to note that there is no clear evidence on how the revised payment system may change the behavior of providers, participants, or both. In addition, some providers serving both SSDI and SSI beneficiaries may continue to experience a net loss after two years if the relative share of their service population that comprises SSDI beneficiaries does not generate enough revenue to offset losses from serving the SSI population.

After examining SSI beneficiary earnings behavior in the SSA administrative data and making some assumptions about probable payments to be generated by SSDI 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, among which slightly more than a third of the cohort earned enough to generate even one Phase 1 milestone payment within three years of assignment. Even for SSDI beneficiaries, about half of whom we would expect to generate the first Phase 1 milestone payment, the likelihood of each successive Phase 1 milestone payment declines substantially.

Moving 30 Percent of Participants into the Outcome Payment Phase. This scenario requires ENs to move participants rapidly into outcome payment status and to collect the lump-sum milestone payment. This means that, for SSI participants, a substantial change in behavior would be necessary given that only 18 percent of SSI Tickets in the early cohort would have generated at least one Phase 2 milestone payment within three years of assignment. In addition, each successive milestone payment after the first in Phase 2 is less likely to occur within three years of assignment. For SSDI participants, the scenario is somewhat more plausible. Our estimates show that about 25 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 rapidly to zero cash benefits. The cost of the additional measures is unknown, making it unclear whether additional revenues will offset such costs.

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 20 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 SSDI beneficiaries. Our estimates show that nearly 55 percent would generate at least one milestone payment, 28 percent would generate all four milestone payments, and about 15 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.

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.

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.

Other Hybrid Scenarios. To determine what is required to break even, and 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 it to break even. If the cost of services per participant is $2,454, then breaking even is expressed as:

•[Percentage of all four milestone-outcome payments 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 cannot meet these targets within 36 months of assignment. Thus, to break even in this period, the EN must either increase the work behavior of beneficiaries or select a mix of beneficiaries likely to reach these targets.

Accepting Tickets Only from Beneficiaries Placed into Jobs by SVRAs. This scenario would involve a new type of EN behavior that is possible under the new regulations but impossible under the original 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, it is highly likely that each accepted Ticket would generate a payment and that ENs’ initial service costs would be low. In this scenario, an EN that expects to collect payments that can offset its costs must create a service environment in which it is possible for beneficiaries to remain in their jobs and move to zero cash benefits.

If a beneficiary first works with an SVRA to obtain job training and placement services and then relies on an EN for follow-up services, the EN might expect to serve such a beneficiary at a lower cost than if the beneficiary had not worked with an SVRA. In fact, the EN would incur no initial service costs for working with the beneficiary, but it would still need staff for intake, follow-up services, and payment tracking. If we eliminate the initial service costs calculated in our analysis for the third evaluation report and reduce intake costs by half, we would predict that an EN would incur nearly $500 to take a Ticket from a beneficiary and track and process his or her payments for three years after assignment.

The observed employment patterns suggest that the new rules can enable an EN to generate a profit if it serves SSDI beneficiaries placed in jobs by an SVRA. While these rules prevent an EN from collecting Phase 1 milestone payments from these SSDI Ticket holders, it appears possible to cover an average cost of $500 with only two Phase 2 milestones if all or nearly all beneficiaries assigning their Ticket 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 SSDI beneficiaries may, however, be able to earn a profit by accepting Tickets from both groups of beneficiaries if they have received SVRA services, with the hope that, after two years, the returns to serving SSDI beneficiaries will offset the small losses associated with serving SSI beneficiaries.

The scenarios above indicate that the revisions to the TTW payment system may make it possible for certain types of ENs that serve some types of beneficiaries to cover their costs. Increased payment values, receiving payments sooner after a beneficiary begins working, and the flexibility to collaborate with an SVRA when serving clients all mean that the revised 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 them to operate profitably. ENs that serve beneficiaries similar to the early cohort of Ticket assignees, for example, may find that, while their financial outlook would improve over the original payment system, short-term deficits would still pose a challenge.