In the literature, thermal insulation systems with a fixed number of heat intercepts have been optimized with respect to intercept locations and temperatures. The number of intercepts and the types of insulators that surround them were chosen by parametric studies. This was because the optimization methods used could not treat such categorical variables. Discrete optimization variables are categorical if the objective function or the constraints can not be evaluated unless the variables take one of a prescribed enumerable set of values. The key issue is that categorical variables can not be treated as ordinary discrete variables are treated by relaxing them to continuous variables with a side constraint that they be discrete at the solution. A new mixed variable programming (MVP) algorithm makes it possible to optimize directly with respect to mixtures of discrete, continuous, and categorical decision variables. The result of applying MVP is shown here to give a 65% reduction in the objective function over the previously published result for a thermal insulation model from the engineering literature. This reduction is largely because MVP optimizes simultaneously with respect to the number of heat intercepts and the choices from a list of insulator types as well as intercept locations and temperatures. The main purpose of this paper is to show that the mixed variable optimization algorithm can be applied effectively to a broad class of optimization problems in engineering that could not be easily solved with earlier methods.