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Federal Financing of Supported Employment and Customized Employment for People with Mental Illnesses: Final Report

Publication Date

U.S. Department of Health and Human Services

Federal Financing of Supported Employment and Customized Employment for People with Mental Illnesses: Final Report

Executive Summary

Mustafa Karakus, William Frey, Howard Goldman, Suzanne Fields and Robert Drake

Westat, Inc.

February 2011

This report was prepared under contract #HHSP23320095655WC between the U.S. Department of Health and Human Services (HHS), Office of Disability, Aging and Long-Term Care Policy (DALTCP) and Westat, Inc. For additional information about this subject, you can visit the DALTCP home page at or contact the ASPE Project Officer, Pamela Doty, at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, S.W. , Washington , D.C. 20201 . Her e-mail address is:

The opinions and views expressed in this report are those of the authors. They do not necessarily reflect the views of the Department of Health and Human Services, the contractor or any other funding organization.

The U.S. Department of Health and Human Services (HHS), Office of the Assistant Secretary for Planning and Evaluation (ASPE) in conjunction with the Federal Employment Workgroup on Disability commissioned a review of the federal financing mechanisms used by state agencies to implement the evidence-based employment models known as Individual Placement and Support (IPS) and Customized Employment (CE). This review comes with the recognition that the federal financing of employment services for people with serious mental illness is a shared responsibility across multiple federal agencies, including the U.S. Social Security Administration (SSA), the HHS Centers for Medicare and Medicaid Services (CMS), the HHS Substance Abuse and Mental Health Services Administration (SAMHSA), the U.S. Department of Education (ED) Rehabilitation Services Administration, the U.S. Department of Veterans Affairs, and the U.S. Department of Labor (DOL). It is believed that improvements in this shared responsibility can lead to more effective support for these evidence-based employment models at the state and local levels. The purpose of this report is to identify strategies for improved access to federal financing of IPS and CE services through case studies of current state and local practices.

The overall employment rate for the general population was 64.5% in 2009. Among those who were working, 80% were working full-time (Bureau of Labor Statistics, 2010). The employment rates among people with serious mental illness are much lower than the general population, estimated to be 22% at any given time, with a little more than half of these individuals (12%) working full-time. While the likelihood of having a job is approximately 1 in 1.5 for the general population, the likelihood among individuals with a serious mental illness is not much better than 1 in 5.

Over the past two decades, substantial attention has been devoted to understanding the poor employment rates of people with serious mental illness and to improving them. However, two employment models developed independently during these years have demonstrated particular success in helping people with a serious mental illness get jobs. The IPS model of supported employment (SE) developed by Drake and Becker (1996) has a strong body of experimental evidence showing that it is effective in helping people with serious mental illness get jobs. CE, a more recent but conceptually convergent employment model has also demonstrated success in assisting people with serious mental illness obtain jobs. Developed and fostered by the DOL (Federal Register, 2002) over the past decade, CE has been less rigorously tested than has IPS.

The IPS and CE models both seek to assist individuals with severe mental illness find jobs that fit their particular needs, interests, and skills, and to support them in ways that enable them to succeed in the workplace. IPS is built on a foundation of seven core principles; including the following: (1) Consumer choice; (2) Integrated services; (3) Competitive employment in regular work settings; (4) Place when individual feels ready; (5) Personalized follow-on support; (6) Person-centered services; and (7) Benefits counseling. A recent empirical review of 11 randomized controlled trials of IPS programs serving individuals a serious mental illness concluded that vocational outcomes are consistently significantly higher than the alternative control program. The 11 studies included a total of 1,690 individuals (812 IPS, 878 Control), all of whom had been diagnosed with a severe mental illness, but who varied in their receipt of Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI). In these studies, members of the control group received either vocational services as usual, or a specific non-IPS vocational rehabilitation (VR) service.

In 2002, DOL’s Office of Disability Employment Policy (ODEP) put forward a formal definition of CE and a major grant initiative to fund programs around it. CE is:

“a flexible process designed to personalize the employment relationship between a job candidate and an employer in a way that meets the needs of both. It is based on an individualized match between the strengths, conditions, and interests of a job candidate and the identified business needs of an employer. Customized Employment utilizes an individualized approach to employment planning and job development -- one person at a time…one employer at a time” (ODEP, 2011).

The focus of the funding was to assist people with disabilities in creating an individualized competitive employment opportunity that meets the needs of both the job seeker and the employer (Federal Register, 2002). The CE model has been used to provide employment services to people with serious mental illness, but the strategy was not developed specifically for this population. CE has six core principles, including the following: (1) Negotiation with employers; (2) Customized job tasks; (3) Person-centered services; (4) Client control; (5)Discovery; and (6) Jobs have the potential for advancement.

Case Studies

Working closely with ASPE and with the Federal Employment Workgroup, the study team identified four states (Illinois, Kansas, Maryland, and Washington) that serve this population using a variety of methods to provide IPS and CE services through braided state general funds, VR funds, mental health block grants, Medicaid funds (rehabilitation option and/or through waivers). The objective of the case studies was to gather information and document the range of funding sources that each state uses to finance IPS/CE services, determine barriers to achieving adequate funding, and identifying how the funding sources are being combined to achieve what little success the state may be having.

Based on the review of four states’ experiences, it is clear that the coordination of state agencies including mental health, VR, and Medicaid, is particularly vital in organizing a viable and successful plan for funding IPS and CE services. The case study findings provided opportunities to clarify (identify) funding strategies using existing mechanisms of support. However, the case studies also pointed to a number of concerns about improving the flow of funds to local levels. These concerns include the following:

  1. Collaboration in most states between state mental health and VR offices is less than ideal for supporting implementation of IPS and CE.

  2. Access to VR services is an important challenge for people with mental illness.

  3. VR’s focus on case closure is not aligned with IPS/CE principles.

  4. Ticket to Work (TTW) payments are not aligned with IPS/CE principles.

  5. One-Stop Career Centers do not have the expertise to serve people with mental illness.

  6. Stronger federal policies in conjunction with steady federal funding that is based on process measures are needed to provide employment support to individuals with serious mental illness.

Funding Models

Based on the case studies and discussions with leading experts, two primary federal funding possibilities were identified: Medicaid and ED funding for state VR services as well as several secondary funding sources, including mental health block grants funded by SAMHSA, one-stop employment centers funded by DOL, and TTW funding from SSA. As noted throughout the report, the main funding source for IPS services has been Medicaid. Medicaid has its limitations, not the least of which is that it covers only those who are Medicaid eligible, leaving those who are not without these critical employment services. Despite some special provisions to encourage employment of people with disabilities, Medicaid financial eligibility rules typically require individuals to be low income and permit them to have almost no savings. Moreover, individuals with serious mental illness can seldom meet Medicaid financial and functional eligibility criteria until they have had more than one and often several acute episodes and their conditions have become chronic. Thus, Medicaid is extremely limited as a funding source for early interventions that might favorably change the long-term prognosis of individuals who have had a first episode of serious mental illness but for whom mental illness is not yet a chronic condition requiring long-term -- perhaps even lifelong -- medical care and social supports. The research identified four primary options for state level funding for SE services through the existing Medicaid infrastructure. These options include using: (1) the Rehabilitation option; (2) the Targeted Case Management option; (3) the 1915(c) Home and Community-Based Services Waivers; and (4) the 1915(i) Home and Community-Based Services option. In order to assist states with each of these options, specific details and procedures are further elaborated in the report.

The Full Report is also available from the DALTCP website ( or directly at