the economic advancement of the mentally ill in the community: 2. economic choices and disincentives

Community Mental Health Journal, Vol. 31, No. 5, October 1995

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The Economic Advancement of the Mentally m in the Community:

Economic Choices and Disincentives

Richard Warner, M.B., D.P.M. Paul Polak, M.D.

ABSTRACT: In order to evaluate the extent to which economic factors influence the life choices of people with mental illness, we interviewed 50 mentally ill people living in Boulder, Colorado. Subjects experience significant financial disincentives to work. The average total cash and noncash income of part-time employed subjects ($1,028 a month) is only modestly higher than that of unemployed subjects ($929 a month). Most clients calcu- late that $5 is the minimum hourly wage which makes work economically practical. Work disincentives could be improved by a more appropriately graduated scheme for reducing disability benefits for beginning workers. A wage subsidy would provide a work incentive to underproductive clients. Psychiatric treatment costs for unemployed subjects in this sample are twice those for the part-time employed. We suggest that research is needed to determine if treatment costs can be reduced by paying clients a wage subsidy.

INTR OD UC TION

In this article and a companion paper (Warner & Polak, 1995) we treat the mentally disabled as a disadvantaged group whose members make rational decisions based on economic realities, and we make sugges- tions for improving their economic condition. The financial decisions of a group can be examined objectively when the available choices are

The research presented in this paper was conducted under a contract (order no. 92MF0389101D) from the Community Support Section, NIMH.

Richard Warner, M.B., D.P.M., is Medical Director, Mental Health Center of Boulder County and Associate Professor, University of Colorado. Paul Polak, M.D., is President, International Development Enterprises, Lakewood, Colorado.

Address correspondence to Richard Warner, M.B., D.P.M., Mental Health Center of Boulder County, 1333 Iris Ave., Boulder, CO 80304.

477 o 1995 H u m a n Sciences Press, Inc.

478 Community Mental Health Journal

understood. What are the options for income-generating activities, and what is the effort required to earn how much income? In this paper we examine economic choices and disincentives for the mentally ill in the community in Boulder, Colorado.

The likelihood that the decisions of the mentally ill will be perceived as irrational is increased by their disability. A decision not to work may be seen as evidence of lack of drive or depressive feelings of inadequacy. Failure to hold a job for long may be thought to be due to functional deficits from the illness; refusal to consider a low-paid job, a result of negativism, grandiose aspirations or lack of insight into one's true functional ability. Squandering one's disability income long before the end of the month is regarded as an example of poor judgment secondary to psychosis. Liebow's (1967) study of the inner-city poor, however, illustrates that these problems are not specific to the mentally ill but are common responses to poverty and to the work opportunities available to the poor.

In the pre-war years, psychiatrists were misled into identifying as typical features of schizophrenia behavior of the hospitalized mentally ill (such as mannerisms, posturing, repetitive activity, and mutism) which was later shown to be largely a result of institutional confine- ment. Today, a better understanding of the economic condition of the mentally ill in the community may help us clarify the extent to which symptoms of psychiatric patients are an integral part of the illness or are environmentally determined. We need to know, for example, if the low self-esteem, withdrawal, apathy and anxiety we see in our patients are negative symptoms of schizophrenia or the well-recognized conse- quences of long-term unemployment (Eisenberg & Lazarsfeld, 1938).

The view of the mentally ill as inherently irrational may explain why attempts to examine the economic behavior, incentives, choices and realities of the mentally ill in the community have been limited. Some publications address the economic impact of schizophrenia on society (Gunderson & Mosher, 1975; McGuire, 1991) and the patient's family (Hart, 1982; McGuire, 1991), and others address the economic decision- making of the physically disabled (Berkowitz & Hill, 1986) but few examine the economic decision-making of the mentally ill person (Bell et al. 1993).

DATA GATHERING METHOD

Detailed information on real income and expenses, including both cash and noncash exchanges, was collected, in 1992, from a representative sample of 50 long-term mentally ill people living in the community in Boulder, Colorado. The characteristics of the

Richard Warner, M.B., D.P.M. and Paul Polak, M.D. 479

subjects, the nature of the community and the details of the data gathering method are described in our companion paper (Warner & Polak, 1995).

Subjects were selected non-randomly to represent different income and employment groups from among the clients of the Mental Health Center of Boulder County. Eighty percent of the subjects were receiving one of the two primary government disability pensions, Supplemental Security Income (SSI) (40%) or Social Security Disability Insur- ance (SSDI) (40%). Virtually all of the subjects had an established source of income and housing: many were living in subsidized (HUD Section 8) housing.

Using a standardized interview format, subjects were asked for details of their cash income from earnings (after tax), disability pension, gifts, loans, illicit activities and other sources; and for details of their noncash income from rent subsidy, and donated items such as food, clothes and services. The cost of medication and health care purchased by health insurance agencies was calculated and included as noncash income. The actual cost of psychiatric care provided (including administrative overhead) was determined from the center's unit cost accounting system and the amount not paid by the client was attributed to noncash income. Food stamps were included as a form of cash income. Where a subject had a shared financial arrangement, as in a marital relationship, the income and expenses for the couple were divided evenly between the two. Subjects were questioned about their economic decision-making to determine why they chose or rejected various economic options. Why are certain sources of cash or noncash income rejected? What disincentives operate against seeking employment and what incentives would encourage sheltered and non-sheltered employment? How much does the client need to earn to make working worthwhile? Why does the subject choose to spend money on one expense rather than another?

The data were organized by dividing the subjects into five reasonably homogeneous economic/employment categories: (1) those with no formal income (n=2); (2) the unemployed (earning less than $50 a month) and receiving a disability pension or other financial support (n=18); (3) those with limited (under 30 hours a week) employment, including sheltered employment, and also, generally, receiving some support payments (n=18); (4) full-time or nearly full-time workers (n=5); and (5) those with relatively large sources of unearned income (for example from a working spouse or a trust fund) (n=9).

Additional information was derived from a questionnaire completed by 84 adult mental health center clients suffering from functional psychotic disorder. The survey included questions about the client's current employment, what work he/she could do, what job the client would like to have, how many hours a week he/she wished to work and how much he/she would need to earn to make work worthwhile.

FINDINGS

I n f o r m a t i o n on t h e e x p e n s e s of t h e m e n t a l l y ill h a s b e e n p r e s e n t e d in ou r c o m p a n i o n p a p e r ( W a r n e r & Po lak , 1995).

Income

F i g u r e 1 d i sp lays t he a v e r a g e i ncome for t h e s amp le of i n t e r v i e w e d subjects , e x c l u d i n g n o n c a s h i ncom e in t h e f o r m of p s y c h i a t r i c t r ea t - m e n t . (We exc l ude p s y c h i a t r i c t r e a t m e n t f r om th i s f i gu re b e c a u s e t h e l a rge v a l u e of t he se se rv ices obscures v a r i a t i o n s in o t h e r f o rms of n o n c a s h i ncome w h i c h a re of in t e res t . )

480 Community Mental Health Journa l

Figure 1

Monthly Income of the Mentally Ill in Boulder

Cash income mllmttwmBmD

Noncash i n c o m e ~

Total income

( 0 500 1000 1500

Dollars per month

[ ] Non-workers ~_~ Part-time workers ~ Full-time workers

2000

Table 1 lists the major sources of cash income. A little under half of the cash income of the group as a whole is derived from Social Security, food stamps or other enti t lement programs: a little over a quarter is earned income. Panhandling is a significant source of income for those with no formal income only.

Table 2 lists the sources of noncash income. The greatest source of noncash income is psychiatric t reatment which averages over $1,000 a month for the sample as a whole. Psychiatric t reatment costs are more than twice as high for the unemployed group (over $2,000 a month) than for the part-time employment group (around $1,000 a month). The principal sources of noncash income, besides psychiatric treatment, are rent subsidy, medication and free meals.

The total cash and noncash income combined (excluding psychiatric treatment) of the unemployed mentally ill ($929) is only a little less than those who are working part-time ($1,028) (see Figure 1). This is because those who are working lose Social Security benefits, food stamps and noncash income (see Tables 1 and 2). The average rent subsidy for part-time workers, for example, is $113 lower than for unemployed subjects.


TABLE 1

M o n t h l y C a s h I n c o m e in Boulder: 1992

No High Whole Formal Unem- Part-time Full-time Income Group Income ployed Emp. Emp. Supp't

( n = 5 2 ) (n = 2) ( n = 1 8 ) ( n = 1 8 ) (n = 5) (n = 9)

Welfare/Soc. Sec.* 354 0 422 353 295 328

Wages (compet. emp.) 183 24 4 189 1129 41

Other sources** 156 0 23 59 2 739

Wages (shel tered emp.) 28 0 1 62 0 33

Food s tamps 21 85 31 20 0 0

Miscel laneous*** 31 91 40 15 77 13

Total cash income 774 202 522 698 1503 1153

* includes SSI, SSDI, AND, AFDC ** includes other pensions, trust funds and spouse's income. *** includes cash gifts, tax rebates, loans, selling goods and panhandling (in descending

order)

TABLE 2

M o n t h l y N o n c a s h I n c o m e in Boulder: 1992

No High Whole Formal Unem- Part-time Full-time Income Group Income ployed Emp. Emp. Supp't

( n = 5 2 ) (n = 2) ( n = 1 8 ) ( n = 1 8 ) (n = 5) (n = 9)

Psych. t r e a t m e n t 1091 591 2064 1012 269 89 Rent subsidy 101 0 187 74 96 8 Medica t ion 76 0 90 95 0 67 Meals 28 50 30 31 50 1 She l te r 22 200 2 27 40 0 Transpor ta t ion 13 8 15 11 37 0 Other* 64 97 82 91 85 17

Total noncash inc 1405 945 2471 1233 577 183

* includes donated clothing, health care, gifts, alcohol, food, drugs, protection, entertainment and laundry (in descending order)

Economic Choices

Why do some subjects reject competitive employment? Unemployed subjects told us, variously, that work is hard, stressful, dirty, demand- ing, and fast-paced. The jobs that are available, we learned, are too low-


grade and don't pay enough, particularly in view of the fact that the working person loses money from his/her pension check and risks losing the disability pension altogether if work continues for long. In order to work, subjects have to give up pleasurable activities, such as a volun- teer job, writing or spending time with friends. Many do not feel they can work full-time and do not th ink part-time work will bring in enough income: some feel that they are just too sick to re turn to work.

What would it take for an unemployed subject to accept employment? Our interviews and a questionnaire survey of 84 other mental ly ill clients indicate that the majority of the nonworking mentally ill need to earn at least $5 an hour plus heal th insurance if employment is to make economic sense. Only 28% of surveyed clients would choose to work for less than $5 an hour: 61% would work for $5 an hour. Many prefer part- time work. Of the surveyed clients who felt capable of working, 48% wanted to work fewer than 30 hours a week. Many would like a higher- grade and more interesting job, and many would be more likely to work if they could avoid losing their disability pension.

Unemployed subjects know about, but reject, a number of other sources of earned income. Several subjects explained that they do not want to work in the sheltered workshop because it is stigmatizing, dull and/or pays too little. The sheltered workshop pays workers a piece rate which, for slow workers, can amount to as little as $2 an hour. Much of the work is repetitive and simple. Very few clients choose to panhandle, play an instrument in public or collect aluminum cans: for people who already have a regular income from a disability pension the returns do not justify the debasement or the effort.

ECONOMIC DISINCENTIVES TO WORK

Mentally ill people in our sample balance several factors to optimize their income, as the following case illustrates.

Floyd is an energetic 32 year-old Hispanic man in outpatient treatment for long- standing schizophrenia. He lives in a group home which does not quality for HUD Section 8 rent subsidy as it is owned by the mental health center. He pays $280 a month for rent, utilities and telephone-substantially more than those who receive a rent subsidy. Meals at the group home, however, are cheap, $36 a month. He has Medicaid which pays most of the cost of his medication ($40 a month).

Floyd receives $329 a month from Social Security Disability Insurance (SSDI). The pension regulations allow him to keep all his earnings if they do not exceed $500 a month (see Appendix A), so he considers it worthwhile to take a minimum wage job ($4.25 an hour). He works about half-time as a casual laborer for a recycling company,


earning between $45 and $75 a week in take-home pay. He also works at a sheltered workshop for around five hours a week earning less than minimum wage on piece- work-between $5 and $15 a week. Floyd could quit the sheltered workshop and increase his hours at the recycling plant but he does not do so for a number of reasons. The recycling work is harder and does not allow time for him to socialize with his friends as he can at the workshop. Furthermore, if he were to maximize his earned income, he would exceed the $500 monthly earnings allowance and would eventually lose his disability pension. He would need to earn $5.20 an hour, working full-time, and receive health insurance, in order to match his maximum income on SSDI and part- time work-and then he would have no fall-back income in those months when his income is lower than usual. Given the opportunities available, Floyd has chosen an employment schedule which provides security and optimum income while minimizing job stress.

Floyd has a greater incentive to work than many of his friends who have a rent subsidy-their rent goes up by 25 cents for every dollar they earn-and more than those who receive Supplemental Security Income (SSI)-their pension checks decrease by 50 cents for every dollar earned after the first $65 or so (see Appendix A). Floyd reports that he would not work if the benefits were that low.

As F loyd ' s case i l lus t r a t e s , t h e decis ion to w o r k is b a s e d on t h r e e c o u n t e r - b a l a n c i n g factors: (1) t h e economic r e t u rn , (2) t he s t r ess and effor t i nvo lved and (3) t he sa t i s f ac t ion de r ived f rom the work . The e x t e n t to w h i c h w o r k is fu l f i l l ing depends upon t h e job and on t he ind iv idua l ' s pe r sona l v a l u e s and wor ld view. Be ing m e n t a l l y ill, t h e effor t of w o r k i n g is o f t en p a r t i c u l a r l y g r e a t b e c a u s e s t r e s s can exacer- b a t e h a l l u c i n a t i o n s or o the r s y m p t o m s . W i t h t he added r i sk of loss of one 's d i sab i l i t y pens ion , t he i ssue of economic r e t u r n a s s u m e s ma jo r p ropor t ions .

Implicit Tax

In fact , t h e income d i f fe ren t i a l b e t w e e n b e i n g u n e m p l o y e d and em- p loyed, in Boulder , does not offer m u c h economic incen t ive for m e n t a l l y ill people to work . In our sample , t he to ta l cash and noncash income of sub jec t s who w o r k p a r t - t i m e is on ly a l i t t le more t h a n for u n e m p l o y e d subjec ts . P a r t - t i m e w o r k e r s r ece ive an a v e r a g e of $245 m o r e a m o n t h in e a r n e d income t h a n the u n e m p l o y e d b u t $156 less f rom Social Secur i ty , food s t a m p s a n d n o n c a s h sources of income. I f u n e m p l o y e d sub jec t s who s t a r t to w o r k pa r t - t ime e n c o u n t e r t he s a m e income loss, th i s w o u l d a m o u n t to, w h a t economis t s t e rm, an implicit tax of 64% on e a r n e d income. Thus , someone w o r k i n g p a r t - t i m e for m i n i m u m wage , w o u l d a c t u a l l y keep , in rea l t e rms , $1.53 a n hour .


The case of another subject is illustrative.

Jennifer, a young single woman with bipolar illness, was receiving Supplemental Security Income (SSI) when she took a 25-hour-a-week job as a teacher's aide for the developmentally disabled, earning $6.63 an hour. In so doing, her SSI declined by $315 a month, she lost $17 a month in food stamps, and her rent subsidy went down by $143. Now she was working, she could no longer stop at her parents ' house and get her lunch every day, and she was often too tired to go there to eat at night: as a result, the cost of her meals went up by $110 a month. Overall, she found herself ahead by no more than $73 a month. The decision to continue in the job became based, therefore, not on economic gains, which were insignificant, but on the opposing factors of stress and self- esteem. Initially, because the disabled pupil to whom she was assigned was so difficult, she decided she would quit: when she was given an easier pupil to work with, however, she resolved to continue in the job. Without an analysis of her economic situation, her ambivalence about working would not have appeared as rational as, in fact, it was, and might have been blamed on schizophrenic apathy, deficits in functioning or just plain laziness.

Another subject fared no better financially when he began part-time work.

We interviewed Matt, a young man with schizophrenia, before and after starting work, 20 hours a week, as a janitor. By working, he increased his monthly wages by $380, but his SSI pension decreased by $153, his food stamps by $35 and his rent subsidy by $130. He ended up only $62 a month better off, but, to him, it seemed worthwhile as he felt more independent than previously.

The situation appears better for full-time workers. Full-time employed subjects in our sample earn an average of $1,125 a month more than the unemployed and receive $256 less from Social Security, food stamps and noncash income sources. In moving from unemployment to full employment, therefore, these subjects meet an implicit tax of only 23%. One reason for their relative financial success is that the full-time workers in our sample are in comparatively high-grade jobs (cabinet- maker, secretary, computer technician, post office worker, photo technician) and earning well above the minimum wage: their average wage, after payroll deductions, is $6.40 an hour. After deducting the implicit tax, therefore, these subjects a:e keeping about $5 an hour of their earnings.

Some of the subjects in our sample, moreover, had only recently begun working and were allowed to keep their Social Security Disabil- i ty Insurance (SSDI) (See Appendix A). This is an important factor in making work feasible: the implicit tax on these SSDI recipients (pri- marily loss of food stamps and rent subsidy) amounted to only 13% of their wages, which means they were realistically earning $5.25 an hour. Other researchers have found that mentally ill SSDI recipients are more likely to take a job than SSI recipients (Jacobs et al., 1992).


This may be because SSI recipients tend to have an earlier age of onset of illness and a more severe form of illness, but it may also be a result of better work incentives for those who receive SSDI.

The Reservation Wage

How do mentally ill clients resolve the issue of economic incentives? Our interviews and survey results indicate that respondents identify a minimum earnings leve l -known to economists as the reservation wage (Berndt, 1991)-which makes work an economically sensible choice. More than three-quarters of the clients we surveyed rule out the option of taking a minimum-wage job, but over 60% would be willing to work for $5 an hour: 80% would work for $6 an hour. If these clients are to advance economically, it appears to be necessary to find or create jobs that pay $5 an hour or more.

Income Gradient

Realistically, many of the moderate- or lower-functioning clients in Boulder must choose between (a) being unemployed and receiving disability income; (b) taking employment in the sheltered workshop and earning a piece-work rate which may fall below $2 an hour; and (c) taking a minimum-wage job and losing benefits and noncash income supplements. The income differential between these options is small, and often insufficient, incentive to take the sheltered employment or the low-grade jobs. An important reason for the success of the worker cooperatives in Trieste and Pordenone, Italy, described in our companion paper (Warner & Polak, 1995) is the greater economic incentive there for the mentally ill to participate in the work force. In Trieste, only the most severely disabled mentally ill (those with 80% disability) receives a disability pension (about $830 a month in 1991). The remain- der of the mental ly ill must work for pay. Less productive patients work half-time as trainees in the cooperative and receive a vocational reha- bilitation stipend of about $290 a month with an incentive increment of $125 ($3.60 to $5.20 an hour). Fully productive workers are employed full-time for $920 a month ($5.75 an hour). In Pordenone, the income gradient is essentially similar except that all full-time workers are paid at a higher rate-S6.65 an hour.

The difference in income gradient for the mentally ill in northern Italy and Colorado is shown in Figure 2 (in which the Boulder figures are for mean cash income from disability pension and wages for our sample). The income gradient is more gradual for Boulder patients

486 Community Mental Health J o u r n a l

Figure 2

Income Gradient for the Mental ly Ill in Trieste and Boulder

c- t - O E

eg-

CO

v

E 0 0 _c

1,600

1,400

1,200

1,000

800

600

400'

200

C

Trieste /

Unemployed Part-time Full-time

Employment Status

entering part-time employment, and is flattened even more when noncash benefits are included. Clearly, the mentally ill in Boulder do not have as great an economic incentive to begin part-time work as those in Trieste. The Ital ian model works well because of the availabili ty of guaranteed jobs for the mentally ill through the cooperative: without this, the unemployed would have no means of support.

Welfare Reform

There is nothing novel about the observation that support payments produce disincentives to employment and engender welfare dependency. A single mother receiving Aid to Families with Dependent Children (AFDC), for example, may find that it does not pay her to return to work because of loss of dollar benefits, food stamps and Medicaid and the additional cost of child care and payroll taxes (Sanc- ton, 1992). In some surveys, 10% to 25% of welfare recipients report being on the rolls mainly to get health coverage (Kosterlitz, 1992).


Recent congressional welfare reform efforts have sought solutions to work disincentives and welfare dependency (Haskins, 1991) but the impact of this legislation has been modest (Sancton, 1992) and more far- reaching recommendations to restructure welfare are gaining attention and support. President Clinton endorses many of the proposals of econo- mist, David Ellwood, who emphasizes that the primary problem under- lying welfare dependency is the fact that welfare recipients cannot earn enough to make work a viable economic choice. Ellwood (1988) proposes that welfare benefits be time-limited and that government ensure that welfare recipients be provided with work which pays enough to prevent poverty. In a similar vein, Kaus (1992) argues for el iminating cash assistance altogether and replacing it with a program of guaranteed jobs.

Innovations in Social Policy for the Mentally Ill

Similar benefit reforms could be considered for the mentally and physically disabled. Innovations in the SSI and SSDI programs to create work incentives would produce substantial savings if they reduced the number of mentally ill on disability pension rolls. In 1991, the number of mentally disordered adults enrolled in these two programs amounted to more than 1.3 million. The growth in the number of SSDI benefici- aries with mental disorder between 1986 and 1991 exceeded 45%, and in adult SSI recipients, more than 75% (Scheffier, 1992).

There are various ways to create economic incentives and a steeper income gradient for mentally ill clients entering the labor force, including the following.

1. Guaranteed Work Schemes. Disability benefits could be restricted to the most disabled and work opportunities guaranteed for others. The Ital ian cooperatives offer a model of a guaranteed work scheme, and our companion paper (Warner & Polak, 1995) provides a discussion of the viability of such enterprises on a local level in the U.S. Providing guaranteed work nationwide for the higher functioning mentally ill would be a massive task.

2. Graduated Benefit Reduction. Congress could establish a graduated benefit reduction scheme for disability income for beginning workers which would hold the implicit tax rate (the loss of prior income versus the increase in new income) to no more than 35%, even when loss of food stamps and rent subsidy are taken into account. We found that


the more liberal trial work period regulations under SSDI, compared to the rapid cut-off of SSI benefits (see Appendix A), was a major factor in maintaining the income of beginning workers in our sample and creat- ing a work incentive; but the complete loss of SSDI which occurs when earnings exceed $500 a month during the extended eligibility period acts as a disincentive to increase work hours and earnings. Other researchers have observed that labor force participation rates for mentally disabled veterans, who are often entitled to receive their VA pension in addition to earned income, is substantially greater than the mentally disabled receiving SSDI or SSI (Rosenheck, personal commu- nication).

An alternative plan (a modified version of current SSDI regulations), might allow the beginning worker to earn up to $500 a month with no loss of SSI or SSDI and, when that earning level is reached, to reduce benefits by 35 cents for every dollar earned. Disability support payments would need to be reinstated immediately if employment is terminated.

To test such a plan, econometric labor supply models need to be developed for mentally ill recipients which can forecast the effects of policy change (Burtless & Hausman, 1978; Moffit, 1990). Such models require the collection of a data set including (a) work and income information which allow the subject to be placed in a defined category of ~'budget constraint," (b) sufficient sample size to provide enough exam- ples of each budget constraint and (c) clinical measures of illness sever- ity, functional capacity and diagnosis.

3. Wage Subsidy. Clients who, due to reduced functioning, require a sheltered work setting need to be paid adequately if they are to find work financially rewarding. Under current benefit regulations, this would require a subsidy to raise their wage from their actual productive earning capacity to around $5 an hour.

Wage subsidies would make it possible to modify the traditional sheltered workshop. Full-wage workshops are not limited by the regula- tion which requires sheltered settings, if they are to receive preferen- tial treatment for government contracts, to maintain a workforce of largely disabled people. The workforce could be expanded to include a greater proportion of fully productive, non-handicapped people: new types of contracts could be sought to broaden the range of tasks. Such changes would make workshops more like mainstream employment, improve work satisfaction, reduce the stigma which many clients associate with workshop employment and encourage the enrollment of currently unemployed people.


How could wage subsidies be funded? Federal regulations governing SSI and SSDI might be waived to allow benefit payments to be diverted into a wage subsidy scheme. The employer would be reimbursed the difference between the worker's rate of production and rate of pay. The U.S. Department of Labor has established a time-study process which can be used to measure this difference (Roberts & Ward, 1987).

If we could anticipate t reatment cost savings for patients who become employed, moreover, we might reasonably look to the mental health t reatment budget as a possible source for a wage subsidy. Further research is required to determine whether the creation of a subsidized wage scheme pays for itself through a reduction in t reatment costs. Psychiatric t reatment costs are more than twice as high for the unemployed subjects in our sample than for the part-time employed, but this could be explained in a number of ways: (a) unemployed subjects are more disturbed and require closer monitoring, (b) working patients benefit from the work experience and have less need for treatment, or (c) workers have less time to attend treatment. One thing is clear: the cost of efficient outpatient t reatment of the unemployed patient is so high in Boulder (around $2,000 a month) that the expense of providing a wage supplement for half-time work for these clients could be met by a mere 10% reduction in the amount of t reatment required. Such a reduction seems possible, purely because the newly employed client will be in a work setting for half the week and less available to be in treatment. Being in a productive role, moreover, could enhance a client's self-esteem and reduce alienation sufficiently that the course of his or her illness would improve.

Can Treatment Costs Be Reduced by Employing Patients?

A number of studies, while not addressing the issue of cost and service utilization directly, have been interpreted as indicating that work is associated with better outcome from mental illness. Several studies have shown that patients discharged from psychiatric hospital who have a job are much less likely to be rehospitalized than those who are unemployed, regardless of the patient's level of pathology (Cohen, 1955; Brown et al., 1958; Freeman & Simmons, 1963; Fairweather et al., 1969; Jacobs et al., 1992). Working patients fare better, but it is not clear if work leads to the improvement in functioning or if higher- functioning patients are more able to hold employment.

Research which addresses the question of cost directly is extremely limited. A study conducted at the Mental Health Center of Boulder County (Ellis & Young, 1983) found that daily psychiatric t reatment


costs were 34% lower for patients who were enrolled in the sheltered workshop (n=31) than for those who were on the workshop waiting list (n=29). It is possible, however, that the patients on the waiting list were less stable than those who were already enrolled.

The introduction of capitated mental health cost reimbursement sys- tems will create the opportunity for experimentation in this area. Agencies operating under a capitated Medicaid plan might reasonably offer a wage subsidy to clients with high outpatient t reatment costs, and track the subsequent cost of care.

CONCLUSION

The mentally disabled encounter significant disincentives to begin work or to increase their working hours. Research is required to evaluate (a) the effects on labor supply of graduated benefit reduction schemes for disabled workers, (b) the impact of subsidized wages on psychiatric t reatment costs and (c) the viability of guaranteed work programs for higher functioning clients.

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Eisenberg, P. & Lazarsfeld, P.F. (1938)The Psychological Effects of Unemployment, Psychological Bulletin, 35:358-90.

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APPENDIX A: DISABILITY BENEFITS

Supplemental Security Income (SSI)

Definition. SSI is a federally administered disability program based on financial need and the presence of a disability expected to last twelve months or more. Medicaid coverage is included.

Earnings Allowance. The exempt amount is $65 earned income plus $20 unearned (or a total of $85 earned, if there is no unearned income) per month. Over this allowance, one dollar is deducted from the SSI check for every two dollars earned.

Trial Work Period. None. The earnings allowances goes into effect immediately and continues indefinitely until the SSI check is reduced to zero. Eligibility continues as long as the recipient is disabled. Medi- caid continues regardless of whether the check has been reduced to zero, as long as ongoing medical care for the disability is needed and the recipient cannot afford to purchase equivalent care (valued at over $15,000 a year) and he/she is using Medicaid at least once every twelve months.

Social Security Disability Insurance (SSDI)

Definition. SSDI is a federal insurance program based on employer/ employee contributions and the presence of a disability expected to last twelve months or more. Medicare coverage begins after 24 months of disability status.


Earnings Allowance. None. The SSDI check is never reduced because of earnings. The recipient receives the whole amount or none at all.

Trial Work Period. The recipient may earn an unlimited amount of money initially. The trial work period ends after nine (not necessarily consecutive) months in which earnings exceed $200.

Extended Period of Eligibility. After the trial work period, the SSDI check is issued for any month in which earnings fall below $500 for a period of 36 consecutive months. Each month's check is based on the previous months' earnings. The first month after the 36-month extended eligibility period in which earnings exceed $500 triggers the termination of SSDI. Medicare benefits continue for 24 months after termination.

the economic advancement of the mentally ill in the community: 2. economic choices and disincentives

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