Injecting Competition into Public‐Sector Return to Work: Prospects for the “Ticket to Work” Initiative

I. INTRODUCTION The U.S. Social Security Administration (SSA) provides substantial transfer payments to persons with work disabilities through the Disability Insurance (DI) program. Cash benefits under this program currently exceed $60 billion, or roughly 22 cents for every dollar of retirement benefits paid by the SSA. In 2001 there were almost 5.3 million persons on the DI rolls. This total reflects a period of particularly high growth over the last decade. (1) Two trends account for this increase. First, the SSA has seen a higher flow of persons onto the DI rolls, a rise that can be traced to an apparent easing of eligibility standards. Although the number of DI applicants has increased only modestly--roughly 1% per year--the number of new beneficiaries has nearly doubled. (2) The second factor contributing to DI growth is a decline in the termination rate. The two most common reasons for termination are death and "aging up" to the retirement fund, both of which are obviously beyond the realm of public policy. However, return to work (RTW) has long been regarded by the SSA as a manageable termination outcome. To foster this end, the SSA has maintained a formal link with the federal/state Vocational Rehabilitation (VR) program since 1965. Nonetheless, the SSA estimates that only 0.5% of DI beneficiaries are removed from the rolls by returning to work (SSA, 1994). The low incidence of RTW among DI beneficiaries motivated Congress to pass the Ticket to Work and Work-lncentive Improvement Act in 1999. Under the act, DI claimants are given tickets, a quasi-voucher mechanism designed to induce private-sector employment networks to compete with public-sector VR in providing RTW services. DI beneficiaries turn the ticket over to an employment-services network (EN) in exchange for an agreed-on set of RTW services. Unlike a voucher, a claimant's ticket is redeemable by a public or private service provider only if the beneficiary returns to work. Furthermore, the EN is not reimbursed for services; rather, the ticket is redeemed for outcome payments from the SSA. The outcome payment is a monthly disbursement that parallels the period during which a former DI claimant does not collect cash benefits. The outcome payment is 40% of the average monthly savings to the DI trust fund (this currently amounts to $277). The EN is eligible to collect payments for up to 60 noncontinuous months. Authorized in 1999, the Ticket to Work (TTW) program was not initiated until April 2002. The first phase included 12 states and took more than a year to implement. Assuming timely completion of three subsequent phases, a nationwide TTW program is scheduled to be operational by the end of 2003. Given this time frame, comprehensive data are not yet available to support a thorough evaluation of the program. However, an early inference regarding the prospects for the TTW program can perhaps be gleaned using the SSA's Project NetWork (PN) demonstration (1993-98). PN was a $25 million controlled experiment funded by the SSA to assess four RTW modalities for SSA beneficiaries in eight states. In Virginia the demonstration examined a rehabilitation regimen very similar to traditional public-sector VR. This article uses the experimental results from the Virginia component of PN to estimate the long-term earnings effects of public-sector RTW services provided to DI beneficiaries. These earnings estimates and service costs are then cast in terms of the stipulations of the TTW initiative. On this basis, the article provides an early inference on the likely impact of the TTW program and develops the policy implications. Section II presents an overview of the SSA's efforts to return DI beneficiaries to work. This provides a brief history of the link between the DI program, public-sector VR, and the evolution of the TTW program. Section III contains an overview of the Virginia outstationing model (VOM) of the PN demonstration and discusses its relevance for the TTW program. …