Role of Intermediaries in Linking TANF Recipients with Jobs: Final Report. Reimbursing Intermediaries for the Services They Provide

02/10/2000

In addition to making critical decisions about how much responsibility to transfer to intermediaries and how to structure the delivery of services at the local level, local welfare offices or their designee must also decide how and how much to reimburse intermediaries for the services they provide.  The most common payment structures are cost reimbursement where organizations are paid for the costs they incur or pay-for-performance where organizations are paid based on their accomplishments.  Key findings regarding the use of different payment structures are summarized below.

1.  Most intermediaries are reimbursed for their services through a cost reimbursement rather than a pay-for-performance arrangement.  In an attempt to combine the benefits of these two payment systems, several of the sites have developed cost reimbursement payment systems that include performance bonuses or incentives.

The shift to a work-based assistance system and greater emphasis on program outcomes has encouraged administrators of TANF employment programs to reconsider how they should reimburse intermediaries for the services they provide.  The experiences of the study sites suggests that while a number of localities have shifted to performance-based payment arrangements, many still reimburse intermediaries on a cost-reimbursement basis.  Some localities combine the two, reimbursing the intermediary for part of their costs through a cost reimbursement mechanism and the remainder through a performance incentive structure (see Table II.4.)  Many of the local sites that rely on cost-reimbursement payment mechanisms include performance criteria in their cost reimbursement contracts and evaluate the success of their intermediaries against these criteria.

Table II.4
Type of Payment Arrangements TANF Intermediaries
Site Payment Arrangement
Arizona
Phoenix Cost reimbursement with performance incentives
Yavapai County na
Arkansas
Little Rock Cost reimbursement
Jefferson County Cost reimbursement
California
San Diego Cost reimbursement; shifting to pay-for-performance
Napa County Cost reimbursement
Connecticut
Hartford Pay-for-performance; shifting to cost reimbursement
New London County Cost reimbursement for case management and assessment
Pay-for-performance for job placement
Florida
Jacksonville Pay-for-performance
Suwannee County Cost reimbursement
Minnesota
St. Paul Cost reimbursement
Olmsted County Cost reimbursement
Nebraska
Omaha Cost reimbursement with performance incentives
Scottsbluff County Cost reimbursement with performance incentives
Ohio
Cleveland Pay-for-performance (job search and placement)
Partial cost reimbursement; partial pay-for-performance (specialized)
Cost reimbursement (training)
Columbiana County Pay-for-performance (job search and placement)
Cost reimbursement (training)
Texas
San Antonio Cost reimbursement
Uvalde County Cost reimbursement
Virginia
Richmond Cost reimbursement
Wise County na

Critics of pay-for-performance reimbursement mechanisms argue that this payment structure encourages program operators to "cream," that is, to provide services to job-seekers who are the most likely to succeed rather than to those most in need of assistance.  Critics of cost-reimbursement payment systems argue that program operators get paid even if the services they provide do not produce results, wasting taxpayers' money and reducing incentives to meet high performance standards.

It is too soon to know whether the way in which intermediaries are reimbursed for their services or the amount they are paid influence program outcomes.  Welfare offices or other relevant administrative entities that reimburse intermediaries on a cost basis believe they can demand high levels of performance from intermediaries as long as clear program goals are established and performance is monitored on an ongoing basis.  Those that reimburse intermediaries based on performance believe that pay-for-performance systems play a critical role in emphasizing the importance of placing recipients in jobs, not just engaging them in employment preparation activities.  All agree that administering a pay-for-performance reimbursement system is much more complicated than administering a cost-reimbursement system.

2.  The sites that reimburse intermediaries through a pay-for-performance system structure their reimbursements very differently, with some placing far greater emphasis on placement or retention than others.

The sites that have implemented pay-for-performance systems have structured their payment mechanisms very differently.  The sites differ in the points at which they paid intermediaries (e.g., enrollment, placement and/or retention) and how they allocate the total payment among the various payment points.  For example, Cleveland pays its intermediaries that provide job search and job placement services at two points:  30-day job retention (50 percent) and 90-day job retention (50 percent).  Hartford pays its intermediaries that provide the same services at three points:  enrollment (60 percent), placement (20 percent), and 90-day retention (20 percent).  The First Coast Workforce Development Board (Jacksonville FL) also pays its intermediary at three points, but concentrates more of its payment on job placement:  enrollment (30 percent), placement (60 percent) and 90-day job retention (10 percent).

Acknowledging that its specialized intermediaries who provide services to hard-to-employ populations face different challenges and have different goals, Cleveland uses a combined cost reimbursement and pay-for-performance system to reimburse these intermediaries.  They receive 36 percent of their contract in monthly installments to cover ongoing operating expenses; the remaining 64 percent is paid based on performance.  To encourage longer-term involvement with clients, intermediaries providing services to ex-offenders or holding "managed care" contracts to provide services to recipients with mental health, substance abuse or other chronic barriers to employment receive 40 percent of the pay-for-performance portion of their reimbursement 30 days after placement, 30 percent 90 days after placement and 30 percent 180 days after placement.  To encourage greater emphasis on helping recipients sustain employment, the payment for intermediaries providing services to intermittent workers is structured to provide less reimbursement for job placement and more for job retention; 10 percent of the pay-for-performance portion of their reimbursement is received 30 days after placement; 40 percent 90 days after placement and 50 percent 180 days after placement.

3.  Regardless of the way in which intermediaries are reimbursed for their services, there is wide variation in the amount intermediaries are paid for the services they provide.  This variation exists between the sites and between intermediaries within some of the sites.

The local sites have made different decisions about how much responsibility to allocate to intermediaries.  They also have made different decisions about how much to reimburse intermediaries for the services they provide, resulting in considerable variation in the amount intermediaries are paid.  In the eight study sites where we were able to obtain comparable reimbursement data, intermediaries were paid as little as $355 and as much as $6250 per recipient served.  (See Table II.5).  Some, but not all, of this variation reflects differences in the services intermediaries provide.  On average, intermediaries that provide only job search and placement assistance are reimbursed $1,320 per person while intermediaries that provide specialized employment services are reimbursed an average of $2970 per person.

Table II.5
Reimbursement per Person for Employment Services Provided
by Primary and Secondary Intermediaries
Type of Site Method of Reimbursement Minimum Maximum Average
Four Urban sites with multiple intermediaries
Site #1 (Comprehensive Servicesa)
Site #2 (Job Search and Placement)
Site #3 (Comprehensive Services)
Site #4 (Job Search and Placement)
Cost
Performance
Cost
Performance
$1,900
1,100
935
580
$3,055
3,995
1,135
2,520
$2,360
2,130
1,045
2,090
Type of organizationb
Nonprofit
For-profit
Educational
Public
na 580
635
355
1,000
6,250
4,640
4,775
5,000
1,785
2,390
2,660
1,680
Type of Services Provided (TANF)b
Job search and placement
Comprehensive servicesa
Training
Specialized (Hard-to-Employ)
na 400
930
355
1,010
5,000
3,055
6,250
5,000
1,320
1,825
2,605
2,970
Welfare-to-Work   745 4,745 3,685
Notes:

a  Comprehensive service includes case management and job search and placement assistance.

b  Based on data from eight sites: San Diego, CA; Napa County, CA; Hartford, CT; St. Paul, MN; Olmsted, MN; Cleveland, OH; Columbiana County, OH and Richmond VA.

Comparisons across four of the urban sites that used multiple intermediaries to provide primary TANF employment services suggest that there is considerable variation within and between the sites in how much intermediaries are reimbursed, even when they provide similar services.(1)  The average per-person reimbursement across the four sites ranges from $1,045 to $2,360.  The sites with the highest and lowest average reimbursement provide comprehensive services  job search and placement assistance and case management  to TANF clients, suggesting that differences in the range of responsibility transferred to the intermediaries do not fully account for the difference in the amount they are reimbursed for the services they provide.  In three of the four sites, the minimum and maximum payment amounts vary dramatically even though the intermediaries have responsibility for providing the same services.  In one site, the highest-paid intermediary is paid almost four times the lowest paid intermediary.  In sites where payments are comparable across intermediaries, program administrators negotiate a similar price with intermediaries regardless of how much they indicate it will cost to provide services.  In sites where there is considerable variation, program administrators accept the price set by intermediaries in their response to the agency's request for bids to provide services.

Footnotes

1.  The reimbursements in the sites that have pay-for-performance arrangements in place are adjusted to reflect the intermediaries placement and retention goals.  Thus, the actual reimbursement paid per client is higher than what is reported here.

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