Child Care
States Exercise Flexibility in Setting Reimbursement Rates and Providing Access for Low-Income Children Gao ID: GAO-02-894 September 18, 2002Federal welfare legislation passed in 1996 placed a greater emphasis on helping low-income families end dependence on government benefits by promoting job preparation and work. To reach this goal, the legislation gave states greater flexibility to design programs that use federal funds to subsidize child care for low-income families. Under the Child Care and Development Fund, this flexibility includes the freedom to largely determine which low-income families are eligible to receive child care subsidies. These maximum rates consist of two parts--a state subsidy and family co-payment. States also establish maximum reimbursement rates for child care. States reported considering market rate survey and budget and policy goals in setting maximum reimbursement rates. All states reported conducting market rate surveys in the past 2 years that obtained data on providers' fees, but 10 states reported that they did not base the reimbursement rates for child care providers on their most recent market rate surveys. In the nine communities visited, GAO calculated that hypothetical families' access to child care centers and family home providers varied widely as a result of the different subsidies and family co-payments established by each state.
GAO-02-894, Child Care: States Exercise Flexibility in Setting Reimbursement Rates and Providing Access for Low-Income Children
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United States General Accounting Office:
GAO:
Report to Congressional Requesters:
September 2002:
Child Care:
States Exercise Flexibility in Setting Reimbursement Rates and
Providing Access for Low-Income Children:
GAO-02-894:
Contents:
Letter:
Results in Brief:
Background:
Most States Reported Considering Market Rate Survey Results, but Also
Considered Budgets and Other Factors in Setting Child Care
Reimbursement Rates:
In Selected Communities, Different Subsidies and Co-Payments Resulted
in Varied Access to Child Care for Low-Income Families:
Concluding Observations:
Agency Comments:
Appendix I: Scope and Methodology:
GAO Survey of State Child Care Officials:
Case Studies in Nine Communities across Three States:
Other Related Activities:
Appendix II: Reimbursement Rates for Informal Child Care Providers in
the Remaining Eight Communities:
Appendix III: Comments from the Department of Health and Human
Services:
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Types and Descriptions of Child Care Providers:
Table 2: Characteristics of Locations Visited in Illinois:
Table 3: Comparison of Reimbursement Rates and Providers‘ Fees for a 2-
person Family (Parent and 2-year-old) in Three Communities in
Illinois:
Table 4: Characteristics of Locations Visited in Maryland:
Table 5: Comparison of Reimbursement Rates and Providers‘ Fees for a 2-
Person Family (Parent and 2-year-old) in Three Communities in Maryland:
Table 6: Characteristics of Locations Visited in Oregon:
Table 7: Comparison of Reimbursement Rates and Providers‘ Fees for a 2-
Person Family (Parent and 2-year-old) in Three Communities in Oregon:
Table 8: The Percent of Family Home Providers and Child Care Centers in
Nine Communities Indicating Willingness to Accept Subsidies:
Table 9: Family Co-Payments as a Percent of Monthly Income in the Nine
Communities for Child Care Centers and Family Homes:
Table 10: Family Co-Payments as a Percent of the Maximum Reimbursement
Rate for Child Care in Maryland, Illinois, and Oregon Communities for
Family Home Care:
Table 11: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-Person Family (Parent and 2-year-old) Using Informal
Providers in Baltimore, Maryland:
Table 12: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-Person Family (Parent and 2-year-old) Using Informal
Providers in Chicago (south side), DuPage County, and DeKalb County,
Illinois:
Table 13: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-Person Family (Parent and 2-year-old) Using Informal
Providers in Montgomery County, Maryland:
Table 14: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-Person Family (Parent and 2-year-old) Using Informal
Providers in Wicomico County, Maryland:
Table 15: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-person Family (Parent and 2-year-old) Using Informal
Providers in the city of Portland and Washington County, Oregon:
Table 16: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-person Family (Parent and 2-year-old) Using Informal
Providers in Linn County, Oregon:
Figures:
Figure 1: Required Family Co-Payments and State Subsidies by Family
Income for Family Home Care in Linn County, Oregon:
Figure 2: Number of States that Reported Surveying Specific Types of
Providers:
Figure 3: Number of States that Reported Using Various Types of
Geographical Areas to Define Child Care Reimbursement Rate Areas:
Figure 4: Required Family Co-Payments and State Subsidies by Family
Income for Family Home Care in Linn County, Oregon:
Abbreviations:
AFDC: Aid to Families with Dependent Children Child:
CCDF: Care and Development Fund:
CCR&R: child care resource and referral:
HHS: Department of Health and Human Services:
PRWORA: Personal Responsibility and Work Opportunity Reconciliation Act
of 1996:
SMI: state median income:
TANF: Temporary Assistance for Needy Families:
[End of section]
United States General Accounting Office:
Washington, DC 20548:
September 18, 2002:
The Honorable Edward M. Kennedy:
Chairman:
Committee on Health, Education, Labor and Pensions:
United States Senate:
The Honorable Christopher J. Dodd:
Chairman:
Subcommittee on Children and Families:
Committee on Health, Education, Labor and Pensions:
United States Senate:
The Honorable Jack Reed:
United States Senate:
Federal welfare reform legislation passed in 1996 placed a greater
emphasis on helping low-income families end dependence on government
benefits by promoting job preparation and work. To reach this goal, the
legislation gave states greater flexibility to design programs that use
federal funds to subsidize child care for low-income families. Under
the Child Care and Development Fund (CCDF), this flexibility includes
the freedom to largely determine which low-income families are eligible
to receive child care subsidies. States also establish maximum
reimbursement rates for child care. These maximum reimbursement rates
consist of two parts”a state subsidy and family co-payment. The state
subsidy is the state‘s share of the reimbursement rate; the co-payment
is the family‘s share”the part of the reimbursement rate that they are
expected to pay to the child care provider. A maximum reimbursement is
the highest amount paid to a provider for rendering child care
services. These reimbursement rates have significant implications for
low-income families and their participation in states‘ subsidized child
care programs. Co-payments may be related to affordability for
families, and reimbursement rates may affect which providers are
willing to participate and to whom they will provide access. To assist
states in establishing child care reimbursement rates, the U.S.
Department of Health and Human Services (HHS) requires them to perform
market rate surveys that measure the fees charged by providers.
This report responds to your request that we (1) describe how states
set reimbursement rates and (2) calculate to what extent subsidies and
co-payments allow families access to specific types of child care
providers in selected communities. To describe how states set
reimbursement rates, we conducted a survey of child care officials in
the 50 states and the District of Columbia and received responses from
49 of them. We also visited 3 states (Illinois, Maryland, and Oregon)
and interviewed officials in state, local, and community-based
organizations in three locations in each state”one urban, one suburban,
and one rural. Our field work was performed in Chicago, DuPage County,
and DeKalb County, Illinois; Baltimore, Montgomery County, and Wicomico
County, Maryland; and Portland, Washington County, and Linn County,
Oregon. In selecting these locations, we sought to include states that
had (1) child care resource and referral (CCR&R) networks with
comprehensive data on providers and the fees they charged; (2) model
market rate surveys; (3) varying income eligibility limits,
reimbursement rates, and co-payment fees; (4) different utilization
patterns for informal child care providers; and (5) some geographic
diversity. To calculate the extent to which reimbursement rates
afforded families access to specific types of child care, we obtained
information on the fees charged by certain types of child care
providers in each of the nine locations we visited and compared them
with state-established reimbursement rates for a 2-year-old living with
one parent. [Footnote 1] Because of the limited number of communities
in our study, the results of our work are not generalizeable. Our work
was done between November 2001 and June 2002 in accordance with
generally accepted government auditing standards. (Appendix I contains
a more detailed discussion of our scope and methodology.)
Results in Brief:
States reported considering market rate survey results and budget and
policy goals in setting maximum reimbursement rates. All states
reported conducting market rate surveys in the past 2 years that
obtained data on providers‘ fees, but 10 states reported that they did
not base the reimbursement rates for child care providers on their most
recent market rate surveys. States also set differing reimbursement
rates based on geographical differences in providers‘ fees and
children‘s ages. For example, some states set reimbursement rates based
on political boundaries such as counties and municipalities. In
addition, states reported that their current budgets were a very
important factor in establishing reimbursement rates. States also
indicated that they considered policy goals, such as improving provider
quality and increasing access for special needs children, in setting
rates.
In the nine communities visited, we calculated that hypothetical
families‘ access to child care centers and family home providers varied
widely as a result of the different subsidies and family co-payments
established by each state. The state reimbursement rates, which consist
of the states‘ subsidies and the families‘ co-payments, would have
allowed a hypothetical family in different communities to purchase care
from different percentages of those providers who were willing to
accept subsidies, ranging from as low as 6 percent of family home
providers in suburban DuPage County to as high as 71 percent of family
home providers in the south side of Chicago. In one Oregon community,
the maximum reimbursement rate for family home care for a family of two
was $340 per month and, at that rate, the family could purchase child
care from 10 percent of family home providers that accepted subsidies.
The family‘s financial responsibility to pay for that child care
increased substantially as its income increased. For example, an Oregon
family‘s share of the reimbursement rate increased from $85 to $271
when its monthly income increased from 100 percent to 150 percent of
the federal poverty threshold ($1,017 to $1,526). (See fig. 1.)
However, reimbursement rates may not strictly limit families‘ choices
among child care providers. State and local officials told us that, in
some cases, families were able to reach financial agreements with child
care providers who were willing to accept the reimbursement rate as
full payment even though it was below the price charged nonsubsidized
families. State and local officials were unable to provide information
on how often this occurred. Families often relied on informal child
care providers who were generally reimbursed at lower rates than states
paid formal, regulated providers.
Figure 1: Required Family Co-Payments and State Subsidies by Family
Income for Family Home Care in Linn County, Oregon:
[See PDF for image]
This figure is a stacked vertical bar graph depicting the following
data:
Family monthly income: $1,017;
Maximum subsidy rate: $350;
State subsidy: $255;
Co-payment (for a family of 2): $85.
Family monthly income: $1,526;
Maximum subsidy rate: $350;
State subsidy: $69;
Co-payment (for a family of 2): $271.
Source: For family income, U.S. Census Bureau poverty thresholds for
2001 were used. We obtained the amount of the state subsidy and family
co-payment from the state of Oregon‘s Department of Human Services.
[End of figure]
Background:
Welfare reform legislation, the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996 (PRWORA), eliminated the federal
entitlement to cash assistance under the Aid to Families with Dependent
Children (AFDC) program and replaced it with a program of block grants
to states known as the Temporary Assistance for Needy Families (TANF)
program. At the same time, Congress amended the Child Care and
Development Block Grant Act of 1990, and required HHS to consolidate
federal child care funds and administer them as a unified program. HHS
named this program the Child Care and Development Fund. The intent of
CCDF is to support state-administered child care programs for both
families receiving public assistance and low-income working families
not receiving public assistance. Since welfare reform, federal
expenditures for CCDF have increased significantly from $2.1 billion in
fiscal year 1996 to $5.3 billion in fiscal year 2000. [Footnote 2] In
fiscal year 2002, about $4.8 billion was appropriated for CCDF. States
also contributed to CCDF, and their funding for this program has nearly
doubled from about $1.0 billion in fiscal year 1996 to $1.9 billion in
fiscal year 2000. The average number of children who received
subsidized child care each month also increased from about 1.2 million
in fiscal year 1996 to 1.7 million in fiscal year 2000.
States receive CCDF funds from potentially four funding streams. Each
state‘s annual federal allocation consists of separate discretionary,
mandatory, and matching funds. A state does not have to obligate or
spend any state funds to receive the discretionary and mandatory funds.
[Footnote 3] However, to receive federal matching funds”and thus its
full CCDF allocation”a state must maintain its program spending at a
specified level, referred to as a state‘s maintenance of effort, and
spend additional state funds above that level.
In addition to consolidating federal funds, PRWORA significantly
changed federal child care policy by giving states maximum flexibility
to design child care programs for low-income families. States have
broad discretion to establish subsidy amounts, family co-payments, and
eligibility limits. States set maximum reimbursement rates that consist
of two parts”the state subsidy paid directly to a provider and the co-
payment the family pays to a provider. [Footnote 4] These co-payments
vary according to family income and size, and the amount of the state
subsidy declines as the family co-payment rises. Co-payments can be
waived for any eligible family whose income is at or below the federal
poverty threshold, including those in the TANF program, and for
children in protective services on a case-by-case basis. [Footnote 5]
As of March 2001, 23 states waived co-payments for TANF families
engaged in TANF or other work activities. According to federal law,
states can set income eligibility limits up to 85 percent of the state
median income (in 2000, this limit ranged from a low of $24,694 for
West Virginia households to a high of $43,941 in Maryland), but most
states set eligibility limits below that level. In the three states we
visited, Oregon reported setting its income eligibility limit at 70
percent of the state median income, Maryland at 50 percent, and
Illinois at 43 percent. States are not required to provide assistance
to all families that fall within state-established eligibility
guidelines, but they are required to give priority to children in very
low-income families and to children with special needs. The program
serves children up to age 13, but HHS allows states to provide child
care services to children with special needs up to age 19.
CCDF subsidies can be used to obtain child care from various types of
providers such as child care centers and family homes. [Footnote 6]
Child care centers, group homes, and family homes are most often
regulated but some are legally exempt depending on the state. Table 1
provides descriptions of the types of child care providers generally
used by subsidized families.
Table 1: Types and Descriptions of Child Care Providers:
Type of provider: Child care center;
Description[A]: Care typically provided for 12 or more children in a
nonresidential facility.
Type of provider: Group home;
Description[A]: Care generally provided for between 6 and 12 children
in a private residence with an assistant.
Type of provider: Family home;
Description[A]: Care generally provided for a small group of children
in a provider‘s home.
Type of provider: Informal[B];
Description[A]: Other legally operating care given by adults, including
relatives and friends, and generally unregulated.
[A] Table 1 provides a general description of different types of child
care providers. In actuality, states define child care differently and
have different licensure and regulatory requirements.
[B] This type of provider includes in-home and unregulated family child
care.
Source: U.S. General Accounting Office, States Increased Spending on
Low-income Families, GAO-01-293 (Washington, D.C.: Feb. 2, 2002) and
Implications of Increased Work Participation for Child Care, GAO/HEHS-
97-75 (Washington, D.C.: May 29, 1997).
[End of table]
States must provide subsidies through vouchers, but some states also
made child care available from providers who have contracts with them.
[Footnote 7] Two of the three states we visited made this option
available to subsidized families. Illinois had contracts with some
child care centers to serve children of subsidized families. As of June
2000, Illinois reported that contracted facilities served about 12
percent of the total number of children in the state‘s subsidized child
care program. Oregon contracted with child care providers primarily to
serve children from targeted, at-risk families.
Periodically, states adjust their reimbursement rates, co-payment
levels, and income eligibility limits. These policy decisions can
affect families‘ access to child care providers. For example, if states
set reimbursement rates too low, some providers might choose not to
serve children of subsidized families. On the other hand, if states set
reimbursement rates too high, some providers might replace children of
nonsubsidized families with those of subsidized families. Co-payment
levels are also important. For example, in Oregon, one study indicated
that, in some cases, a family‘s economic position worsened as a parent
moved from a job paying $6 per hour to one paying $8 per hour because
increases in the family‘s earnings were more than offset by decreases
in child care and other subsidies. [Footnote 8]
HHS is charged with providing oversight, technical assistance and
guidance to states, which have responsibility for administering CCDF
programs. HHS requires states to submit biennial state CCDF plans that
include, among other things, certification that within the past 2 years
they performed a market rate survey. A market rate survey is a tool to
be used by states to obtain information about providers, including the
fees they charge, the type of child care they provide, the age groups
of the children they serve, and where they are located. Although states
are required to conduct market rate surveys every 2 years and consider
the results, they are not compelled to use them in setting child care
reimbursement rates. States are also required to certify that they met
the equal access provision, a part of the federal law that requires
states to set rates that are sufficient to provide access to child care
services for eligible families that are comparable to those of families
that do not receive subsidies. While HHS reviews and approves CCDF
state plans, states have substantial discretion in determining the
basis on which they will certify to HHS that they meet the equal access
provision. HHS has authority to sanction states if they do not
substantially comply with the law, but HHS officials told us that these
sanctions have never been used. [Footnote 9] HHS provided guidance
indicating that co-payment levels at no more than 10 percent of family
income could be considered affordable and reimbursement rates set at
least at the 75th percentile of providers‘ fees can be presumed to
provide equal access. In this case, the maximum rate paid by the state
and the family would be equal to or greater than the fees charged by 75
percent of providers or for 75 percent of providers‘ slots. However,
states are free to set co-payments and reimbursement rates at other
levels.
Most States Reported Considering Market Rate Survey Results, but Also
Considered Budgets and Other Factors in Setting Child Care
Reimbursement Rates:
States used the results of market rate surveys to help set child care
reimbursement rates, but also reported considering other factors such
as budgets in rate setting. Consistent with HHS guidance, 40 states
reported that the survey results were an important consideration when
setting reimbursement rates. [Footnote 10] However, 10 states did not
use their most recent surveys in setting current reimbursement rates.
States establish different rate schedules for geographical areas and
different age groups of children. To establish their rates, states
often set maximum reimbursement rates at a percentile of the
distribution of providers‘ fees. However, in setting their child care
reimbursement rates, many states considered their budgets and other
policy goals. Thirty-two states reported that their current budgets
were of great importance when setting reimbursement rates. Other
factors that states considered important in setting their rates
included achieving policy goals such as expanding eligibility,
improving child care quality, and increasing the supply of certain
types of child care providers.
Most States Reported Considering Market Rate Survey Results in Setting
Rates:
Most states reported using their current market rate survey results to
help set reimbursement rates; some states reported that they referred
to less current survey information. Forty states reported that the
results of their most recent market rate survey were very important in
determining their current child care reimbursement rates. However,
while 10 states reported that they had completed current market rate
surveys as required by regulations, they used less current market rate
survey results to set their rates. The market rate surveys they used
were not completed within 2 years of their approved fiscal year 2001
CCDF plans. Of these, 3 states (Michigan, North Dakota, and West
Virginia) considered 1999 market rate survey results, 5 states
(Arizona, District of Columbia, Illinois, Iowa, and North Carolina)
reported considering results from 1998 market rate surveys, 1 state
(New Hampshire) considered results from 1994, and 1 state (Missouri)
considered market rate survey results from 1991 and 1996. [Footnote 11]
States reported that their market rate survey results primarily
included data on providers‘ fees from regulated child care center,
family home, and group home providers. For example, 48 states surveyed
regulated child care centers and 47 states surveyed regulated family
home providers. In contrast, 24 states surveyed unregulated providers.
[Footnote 12] Of these, 15 states reported that they obtained
information about child care fees from relatives and/or other
unregulated providers, such as religious-affiliated child care
providers. (See fig. 2 for the types of providers that states indicated
were included in their market rate surveys.)
Figure 2: Number of States that Reported Surveying Specific Types of
Providers:
[See PDF for image]
This figure is a multiple vertical bar graph depicting the following
data:
Number of States that Reported Surveying Specific Types of Providers:
Type of provider: Centers;
Regulated: 48;
Unregulated: 6.
Type of provider: Family homes;
Regulated: 47;
Unregulated: 9.
Type of provider: Group homes;
Regulated: 34;
Unregulated: 2.
Type of provider: Relatives, others;
Regulated: 1;
Unregulated: 15.
Note: Most states included more than one type of provider in the market
rate survey.
Source: GAO survey responses from 48 states and the District of
Columbia.
[End of figure]
After an examination of those fees, state officials decided whether and
how to divide the state into regions based on variations in providers‘
fees. State officials may use a variety of methods for dividing the
state into regions. As shown in figure 3, 18 states reported setting
rates for multicounty regions, and 16 states set rates based on
political boundaries, such as counties or municipalities. Illinois and
Maryland, two of the states we visited, established reimbursement rate
schedules that combined areas into multicounty regions. These regions
generally consisted of counties that were not necessarily contiguous to
one another but were designed to capture providers who charged similar
fees. Oregon, the third state we visited, grouped zip codes with
comparable providers‘ fees into three reimbursement rate areas.
Conversely, 14 states reported that they did not pay different
reimbursement rates to providers based on their location. In some
cases, officials reported they did not divide the state into regions
because there was little variation in fees across the state.
Figure 3: Number of States that Reported Using Various Types of
Geographical Areas to Define Child Care Reimbursement Rate Areas:
[See PDF for image]
This figure is a multiple vertical bar graph depicting the following
data:
Type of Geographical Areas: Multicounty regions;
Number of states reporting: 18.
Type of Geographical Areas: Urban/rural counties;
Number of states reporting: 16.
Type of Geographical Areas: Municipalities;
Number of states reporting: 3.
Type of Geographical Areas: Zip codes;
Number of states reporting: 1.
Note: Some states reported using more than one method.
Source: GAO survey responses from 48 states and the District of
Columbia.
[End of figure]
Most states also reported setting distinct child care reimbursement
rates based on the age group of the child needing care. The states we
visited, for example, had differing rates for infants and school aged
children. In addition, separate rates were often used for child care
providers who accepted special needs children, exceeded quality
standards, or offered evening and/or weekend care. For example, 24
states reported that they had distinct child care reimbursement rates
for providers whose care exceeded state quality standards.
In setting their reimbursement rates, most states ranked providers‘
fees by type and location of care from highest to lowest, and set
maximum reimbursement rates at a percentile of these fees. HHS
suggested that states set their maximum child care reimbursement rate
at least at the 75th percentile based on the most recent market rate
survey results. In responding to our survey, 21 states indicated that
they did so. An additional 7 states indicated that they set rates at
least at the 75th percentile but used a more dated survey. [Footnote
13]
States Reported Their Budget and Policy Goals Were Also Considered in
Rate Setting:
While states most often reported that market rate survey results were
very important in setting child care reimbursement rates, they also
reported that their state budget and policy goals were important
factors considered when setting rates. For example, 32 states reported
that the amount of their current budget was of great importance when
setting child care reimbursement rates. Budgets are important because
they establish a financial framework for developing programs and policy
goals. State budget processes and their contributions to CCDF affect
the amount of money that states choose to spend on child care. During
the budget process, trade-offs occur when state decision makers must
balance policy goals and program needs against available resources. One
potential result of such trade-offs could be that as resources
available for child care programs become constrained, more states might
be reluctant to adjust their maximum reimbursement rates in line with
recent market rate surveys. However, in our survey, child care
officials in 27 states indicated that they expected their child care
budgets to remain the same, and child care officials in 11 states
expected their child budgets to increase in the next fiscal year.
[Footnote 14]
Some state officials told us they used income limits and family co-
payments to manage child care program expenditures and to target child
care subsidies. Under CCDF, states are permitted to set income
eligibility limits to include families whose incomes are up to 85
percent of the state median income (SMI), but most states set their
limits below the allowable federal level. They may do so to accommodate
state budgetary constraints, to target poorer families, or both. In our
survey, states reported setting income eligibility limits that ranged
from 42 percent of the SMI (in Missouri) to 105 percent of the SMI (in
Pennsylvania). [Footnote 15] States also varied co-payments to
accommodate their budgets and to target certain families. In Oregon,
for example, as our hypothetical family‘s income increased from 75
percent to 150 percent of the federal poverty threshold, required co-
payments increased from 6 percent to 18 percent of monthly income.
States also considered other child care policy goals in setting their
reimbursement rates. Thirty-eight states reported that they used
reimbursement rates to encourage child care providers to achieve
specific results such as expanding eligibility and improving child care
quality. Specifically, 29 states reported that they used reimbursement
rates to encourage providers to increase staff education or training,
26 states used rates to encourage providers to make general
improvements in quality, 20 states used rates to encourage providers to
increase access to their facilities for special needs children, and 18
states reported using reimbursement rates to encourage improvements in
providers‘ facilities that promote children‘s health and safety. In
some states, providers received higher reimbursement rates for
achieving these results.
The three states we visited used reimbursement rates in different ways
in pursuit of specific policy goals within their child care programs.
For example, Illinois encouraged child care centers to increase the
number of child care slots available to low-income families with
infants and toddlers by paying up to an additional 10 percent to center
providers who served a large number of subsidized children 2 years old
or younger. For fiscal year 2000, the state reported that an additional
390 slots for subsidized infants and toddlers were added as a result of
this initiative. Illinois also implemented a statewide initiative that
paid providers an additional subsidy amount to care for children with
disabilities. Based on receiving the increased subsidies, providers
were expected to purchase adaptive equipment and obtain specialized
training to improve the care they gave these children. In Maryland, a
tiered reimbursement rate program”paying different rates to child care
providers based on program accreditation, staff credentialing,
continued training, staff compensation, and other achievements”was
established to improve the qualifications of the child care workforce,
encourage parent involvement, and promote a high level of program
quality. Few states reported having evaluated the effects of such uses
of reimbursement rates.
In Selected Communities, Different Subsidies and Co-Payments Resulted
in Varied Access to Child Care for Low-Income Families:
In the nine communities we visited, we calculated that the maximum
reimbursement rates afforded hypothetical 2-person families widely
different levels of access to child care providers who accepted the
subsidy. [Footnote 16] The state reimbursement rates, which consist of
the states‘ subsidies and families‘ co-payments, allowed hypothetical
families, for example, to purchase care from 6 percent to 71 percent of
family home providers who accepted the subsidy in these nine
communities. Families generally could afford child care from a greater
percentage of providers in urban communities than suburban and rural
communities. In all three states, the states‘ subsidies decreased as
families‘ incomes increased; this sometimes resulted in steep increases
in family co-payments. These required co-payments ranged from 1 percent
to 18 percent of a hypothetical family‘s income, varying by the level
of income. However, reimbursement rates may not strictly limit
families‘ choices among child care providers. State officials reported
that families were sometimes able to make financial arrangements with
formal, regulated providers whose fees exceeded state reimbursement
rates. In addition, families could obtain care they needed or wanted
from informal providers who were generally reimbursed at lower rates
than states paid formal, regulated providers. State officials were
unable to provide information on how often these circumstances
occurred.
Affordability of Specific Types of Child Care Varied Widely as a Result
of Subsidies and Co-payments in Nine Communities:
The affordability of child care for hypothetical families of two
(consisting of a parent and 2-year-old) varied as a result of different
subsidies and co-payments in nine selected communities. Moreover, the
choice that rates afforded families among available providers was
generally greater in urban communities than in suburban and rural
communities. The only exception was among family home providers in
Maryland, where families were able to afford a greater portion of this
type of care in suburban and rural communities.
Illinois:
We visited three communities in Illinois”one urban, one suburban, and
one rural. Table 2 shows the characteristics of Chicago, DuPage County,
and DeKalb County.
Table 2: Characteristics of Locations Visited in Illinois:
Location: Chicago[A];
Geographic area: Urban;
Estimated population: 2.8 million;
Median household income: $63,800;
Percent of people living in poverty: 22.
Location: DuPage County;
Geographic area: Suburban;
Estimated population: 904,000;
Median household income: $64,365;
Percent of people living in poverty: 4.
Location: DeKalb County;
Geographic area: Rural;
Estimated population: 89,000;
Median household income: $46,964;
Percent of people living in poverty: 8.
Location: Statewide
Geographic area: Not applicable;
Estimated population: 12.4 million;
Median household income: $45,803;
Percent of people living in poverty: 11.
[A] In this table, the description of Chicago is for the entire city.
Our analysis of providers‘ fees is only for the south side of the city.
Source: Characteristics of the geographic areas were obtained from the
city of Chicago government and the Illinois Network of Child Care
Resource and Referral Agencies; population estimates, median household
income, and poverty thresholds were obtained from the city of Chicago
government and the U.S. Census Bureau.
[End of table]
While Illinois set the same reimbursement rate for child care centers
for these three communities, the extent to which the rates afforded
choice among family home providers and child care centers varied
widely, resulting sometimes in large differences between prevailing
local fees and maximum reimbursement rates. For example, of those
family home providers who accepted child care subsidies, 6 percent to
71 percent had fees that were within (i.e., equal to or less than) the
maximum reimbursement rate. Of those child care centers that accepted
subsidies, 30 percent to 100 percent had fees within the rate.
Moreover, to provide our hypothetical low-income families with greater
access to family home providers in DuPage County would require a
significant increase in the state‘s maximum reimbursement rate.
Specifically, to allow families access to approximately 50 percent of
the family home providers, the maximum reimbursement rate would need to
be raised 39 percent from $466 to $650, a monthly increase of $184. See
table 3 for comparisons of providers‘ fees, reimbursement rates, and
percent of providers accepting subsidies who charged fees within the
reimbursement rate in three Illinois communities.
Table 3: Comparison of Reimbursement Rates and Providers‘ Fees for a 2-
Person Family (Parent and 2-year-old) in Three Communities in Illinois:
Community: Chicago (south side);
Type of child care: Family home;
Maximum reimbursement rate: $466;
Median price: $466;
Total number of providers: 732;
Number of providers accepting subsidies: 713;
Number of providers within reimbursement rate and accepting subsidies:
509;
Percent of subsidy-accepting providers within rate: 71.
Community: Chicago (south side);
Type of child care: Center;
Maximum reimbursement rate: $731;
Median price: $433;
Total number of providers: 99;
Number of providers accepting subsidies: 94;
Number of providers within reimbursement rate and accepting subsidies:
89;
Percent of subsidy-accepting providers within rate: 95.
Community: DuPage County;
Type of child care: Family home;
Maximum reimbursement rate: $466;
Median price: $650;
Total number of providers: 345;
Number of providers accepting subsidies: 161;
Number of providers within reimbursement rate and accepting subsidies:
9;
Percent of subsidy-accepting providers within rate: 6.
Community: DuPage County;
Type of child care: Center;
Maximum reimbursement rate: $731;
Median price: $753;
Total number of providers: 97;
Number of providers accepting subsidies: 86;
Number of providers within reimbursement rate and accepting subsidies:
26;
Percent of subsidy-accepting providers within rate: 30.
Community: DeKalb County;
Type of child care: Family home;
Maximum reimbursement rate: $414;
Median price: $433;
Total number of providers: 95;
Number of providers accepting subsidies: 61;
Number of providers within reimbursement rate and accepting subsidies:
18;
Percent of subsidy-accepting providers within rate: 29.
Community: DeKalb County;
Type of child care: Center;
Maximum reimbursement rate: $731;
Median price: $595;
Total number of providers: 12;
Number of providers accepting subsidies: 12;
Number of providers within reimbursement rate and accepting subsidies:
12;
Percent of subsidy-accepting providers within rate: 100.
Note: The number of centers accepting subsidies included those that
were contracted by the state to provide child care to subsidized
children.
Source: Our calculations based on provider data obtained from the
Illinois Network of Child Care Resource and Referral Agencies and the
Illinois Department of Human Services.
[End of table]
Maryland:
We visited three communities in Maryland”one urban, one suburban, and
one rural. Table 4 shows the characteristics of Baltimore, Montgomery
County, and Wicomico County.
Table 4: Characteristics of Locations Visited in Maryland:
Location: Baltimore;
Geographic area: Urban;
Estimated population: 2.8 million;
Median household income: $33,900;
Percent of people living in poverty: 22.
Location: Montgomery County;
Geographic area: Suburban;
Estimated population: 873,000;
Median household income: $70,100;
Percent of people living in poverty: 5.
Location: Wicomico County;
Geographic area: Rural;
Estimated population: 85,000;
Median household income: $36,400;
Percent of people living in poverty: 13.
Location: Statewide
Geographic area: Not applicable;
Estimated population: 5.3 million;
Median household income: $52,346;
Percent of people living in poverty: 9.
Source: Characteristics of the geographic areas were obtained from the
Wicomico County government and the Maryland Committee for Children;
population estimates, median household income, and poverty thresholds
were obtained from the U.S. Census Bureau.
[End of table]
Across the three Maryland communities, the reimbursement rates afforded
our hypothetical families varied access to family home providers and
child care centers. As shown in table 5, of those family home providers
who accepted child care subsidies, 45 percent to 64 percent had fees
that were within the maximum reimbursement rate. The percent of
participating child care centers that had fees within the rate
varied”from 37 percent to 68 percent. In contrast to Illinois,
providing low-income families with greater access to subsidized child
care in Maryland would generally require smaller increases in the
states‘ maximum reimbursement rates. For example, to allow families
access to approximately 50 percent of the child care centers in
Wicomico County, would require raising the maximum reimbursement rate 5
percent from $358 to $375, a monthly increase of $17. See table 5 for
comparisons of providers‘ fees, reimbursement rates, and percent of
providers accepting subsidies who charged fees within the reimbursement
rate in three Maryland communities.
Table 5: Comparison of Reimbursement Rates and Providers‘ Fees for a 2-
Person Family (Parent and 2-year-old) in Three Communities in Maryland:
Community: Baltimore;
Type of child care: Family home;
Maximum reimbursement rate: $429;
Median price: $433;
Total number of providers: 1159;
Number of providers accepting subsidies: 1118;
Number of providers within reimbursement rate and accepting subsidies:
501;
Percent of subsidy-accepting providers within rate: 45.
Community: Baltimore;
Type of child care: Center;
Maximum reimbursement rate: $433;
Median price: $417;
Total number of providers: 77;
Number of providers accepting subsidies: 77;
Number of providers within reimbursement rate and accepting subsidies:
52;
Percent of subsidy-accepting providers within rate: 68.
Community: Montgomery County;
Type of child care: Family home;
Maximum reimbursement rate: $596;
Median price: $563;
Total number of providers: 634;
Number of providers accepting subsidies: 495;
Number of providers within reimbursement rate and accepting subsidies:
241;
Percent of subsidy-accepting providers within rate: 49.
Community: Montgomery County;
Type of child care: Center;
Maximum reimbursement rate: $659;
Median price: $669;
Total number of providers: 76;
Number of providers accepting subsidies: 69;
Number of providers within reimbursement rate and accepting subsidies:
33;
Percent of subsidy-accepting providers within rate: 48.
Community: Wicomico County;
Type of child care: Family home;
Maximum reimbursement rate: $325;
Median price: $325;
Total number of providers: 160;
Number of providers accepting subsidies: 123;
Number of providers within reimbursement rate and accepting subsidies:
79;
Percent of subsidy-accepting providers within rate: 64.
Community: Wicomico County;
Type of child care: Center;
Maximum reimbursement rate: $358;
Median price: $375;
Total number of providers: 20;
Number of providers accepting subsidies: 19;
Number of providers within reimbursement rate and accepting subsidies:
7;
Percent of subsidy-accepting providers within rate: 37.
Source: Our calculations based on provider data obtained from the
Maryland Committee for Children and the local subsidy agencies for
Baltimore, Montgomery County, and Wicomico County.
[End of table]
Oregon:
We visited three communities in Oregon”one urban, one suburban, and one
rural. Table 6 shows the characteristics of Portland, Washington
County, and Linn County.
Table 6: Characteristics of Locations Visited in Oregon:
Location: Portland;
Geographic area: Urban;
Estimated population: 529,000;
Median household income: $37,363;
Percent of people living in poverty: 15.
Location: Washington County;
Geographic area: Suburban;
Estimated population: 445,000;
Median household income: $51,775;
Percent of people living in poverty: 7.
Location: Linn County;
Geographic area: Rural;
Estimated population: 103,000;
Median household income: $37,123;
Percent of people living in poverty: 12.
Location: Statewide
Geographic area: Not applicable;
Estimated population: 3.4 million;
Median household income: $39,575;
Percent of people living in poverty: 913
Source: Characteristics of the geographic areas were obtained from the
city of Portland government, Washington County government, and the
state of Oregon‘s Secretary of State; population estimates, median
household income, and poverty thresholds were obtained from the U.S.
Census Bureau and the city of Portland government.
[End of table]
In Oregon, hypothetical families‘ access to providers varied slightly
and was limited. For example, of those family home providers who
accepted child care subsidies, 10 percent to 24 percent had fees that
were within the maximum reimbursement rate. Of those child care centers
participating, 0 percent to 17 percent had fees within the rate. See
table 7 for comparisons of providers‘ fees, reimbursement rates, and
percent of providers accepting subsidies who charged fees within the
reimbursement rate in three Oregon communities.
Table 7: Comparison of Reimbursement Rates and Providers‘ Fees for a 2-
Person Family (Parent and 2-year-old) in Three Communities in Oregon:
Community: Portland;
Type of child care: Family home;
Maximum reimbursement rate: $386;
Total number of providers: 511;
Number of providers accepting subsidies: 402;
Number of providers within reimbursement rate and accepting subsidies:
98;
Percent of subsidy-accepting providers within rate: 24.
Community: Portland;
Type of child care: Center;
Maximum reimbursement rate: $545;
Total number of providers: 61;
Number of providers accepting subsidies: 52;
Number of providers within reimbursement rate and accepting subsidies:
7;
Percent of subsidy-accepting providers within rate: 13.
Community: Washington County;
Type of child care: Family home;
Maximum reimbursement rate: $386;
Total number of providers: 486;
Number of providers accepting subsidies: 305;
Number of providers within reimbursement rate and accepting subsidies:
44;
Percent of subsidy-accepting providers within rate: 14.
Community: Washington County;
Type of child care: Center;
Maximum reimbursement rate: $545;
Total number of providers: 44;
Number of providers accepting subsidies: 38;
Number of providers within reimbursement rate and accepting subsidies:
0;
Percent of subsidy-accepting providers within rate: 0.
Community: Linn County;
Type of child care: Family home;
Maximum reimbursement rate: $340;
Total number of providers: 201;
Number of providers accepting subsidies: 143;
Number of providers within reimbursement rate and accepting subsidies:
14;
Percent of subsidy-accepting providers within rate: 10.
Community: Linn County;
Type of child care: Center;
Maximum reimbursement rate: $419/465[A];
Total number of providers: 6;
Number of providers accepting subsidies: 6;
Number of providers within reimbursement rate and accepting subsidies:
1;
Percent of subsidy-accepting providers within rate: 17.
Note: A median price for child care within an Oregon community could
not be calculated because of the manner in which the child care
resource and referral network collects provider fee data (see app. I).
[A] Child care centers in Linn County are situated in two reimbursement
rate areas.
Source: Our calculations based on provider data obtained from the
Oregon Child Care Resource and Referral Network and the Oregon
Department of Human Resources.
[End of table]
Most Providers Expressed Willingness to Accept Child Care Subsidies:
In the nine communities we visited, most child care providers indicated
to local resource and referral offices a willingness to accept
subsidized children; center providers reported a willingness to accept
subsidized children more often than family home providers. As shown in
table 8, 85 percent to 100 percent of child care centers reported a
willingness to accept subsidies compared with 47 percent to 97 percent
of family home providers across the nine communities. State officials
considered the percent of child care providers who were willing to
participate in subsidized child care programs an important measure of
access.
Table 8: The Percent of Family Home Providers and Child Care Centers in
Nine Communities Indicating Willingness to Accept Subsidies:
Community: Chicago (south side), Ill.
Percent of family home providers: 97;
Percent of child care centers: 95.
Community: DuPage County, Ill.
Percent of family home providers: 47;
Percent of child care centers: 89.
Community: DeKalb County, Ill.
Percent of family home providers: 64;
Percent of child care centers: 100.
Community: Baltimore, Md.
Percent of family home providers: 96;
Percent of child care centers: 100.
Community: Montgomery County, Md.
Percent of family home providers: 78;
Percent of child care centers: 91.
Community: Wicomico County, Md.
Percent of family home providers: 77;
Percent of child care centers: 95.
Community: Portland, Ore.
Percent of family home providers: 79;
Percent of child care centers: 85.
Community: Washington County, Ore.
Percent of family home providers: 63;
Percent of child care centers: 86.
Community: Linn County, Ore.
Percent of family home providers: 71;
Percent of child care centers: 100.
Source: Our calculations based on provider data obtained from child
care resource and referral networks in the three states. These figures
reflect intentions providers expressed to local child care resource and
referral offices.
[End of table]
Results from our national survey also showed that the providers‘
participation rates varied. In our survey, states estimated that the
proportion of licensed child care providers who participated in their
subsidized programs ranged from 23 percent to 90 percent, with a median
of 69 percent. However, even though provider participation was
generally high, local child care resource and referral staff told us
that some providers limited the number of subsidized children they
accepted at any one time and others may have required parents to pay
the difference between the reimbursement rates and providers‘ fees.
(This last point is discussed in greater detail later in the report.)
Families Faced Larger Co-payments as Their Incomes Increased:
Although maximum reimbursement rates were the same for all subsidized
families within a community, a family‘s share of this rate, or co-
payment, increased as family income increased. [Footnote 17] For
example, for a family of two in Linn County, Oregon, earning $1,017 a
month (100 percent of the federal poverty threshold) the maximum
reimbursement rate for family home care was $340”comprised of an $85
required family co-payment and a state subsidy of $255. As the family‘s
income increased to $1,526 a month (150 percent of the federal poverty
threshold), its required co-payment rose to $271, and the state subsidy
declined to $69. [Footnote 18] The relationships among co-payments,
state subsidies, and income for a family of two in Linn County, Oregon,
using family home care are illustrated in figure 4.
Figure 4: Required Family Co-Payments and State Subsidies by Family
Income for Family Home Care in Linn County, Oregon:
[See PDF for image]
This figure is a stacked vertical bar graph depicting the following
data:
Required Family Co-Payments and State Subsidies:
Family monthly income: $763;
Maximum reimbursement rate: $350;
State subsidy: $298;
Co-payment (for a family of 2): $42.
Family monthly income: $1,017;
Maximum reimbursement rate: $350;
State subsidy: $255;
Co-payment (for a family of 2): $85.
Family monthly income: $1,272;
Maximum reimbursement rate: $350;
State subsidy: $183;
Co-payment (for a family of 2): $157.
Family monthly income: $1,526;
Maximum reimbursement rate: $350;
State subsidy: $69;
Co-payment (for a family of 2): $271.
Source: For family income, U.S. Census Bureau poverty thresholds for
2001 were used. We obtained the amount of the state subsidy and family
co-payment from the state of Oregon‘s Department of Human Services.
[End of table]
Required co-payments resulted in families paying from 1 percent to
18 percent of their income for child care across the nine communities.
Oregon, which had a statewide co-payment schedule, required our
hypothetical families to make the highest co-payments of the three
states we visited. [Footnote 19] Regardless of where they lived,
subsidized families with monthly earnings of $1,526 paid 18 percent of
their income for child care. Maryland, which varied co-payment amounts
by region, required families in Montgomery County to pay higher co-
payments than those in Baltimore and Wicomico County. In Illinois,
which also has a statewide co-payment schedule, the co-payments in
every community were less than 10 percent of family income at 150
percent of the federal poverty threshold. See table 9 for monthly
income, family co-payment, and co-payments as a percent of income in
the nine communities.
Table 9: Family Co-Payments as a Percent of Monthly Income in the Nine
Communities for Child Care Centers and Family Homes:
Location: Illinois;
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Family monthly co-payment: $35;
Co-payment as percent of income: 5.
Location: Illinois;
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Family monthly co-payment: $65;
Co-payment as percent of income: 6.
Location: Illinois;
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Family monthly co-payment: $87;
Co-payment as percent of income: 7.
Location: Illinois;
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Family monthly co-payment: $134;
Co-payment as percent of income: 9.
Location: Baltimore, Maryland;
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Family monthly co-payment: $9;
Co-payment as percent of income: 1.
Location: Baltimore, Maryland;
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Family monthly co-payment: $26;
Co-payment as percent of income: 3.
Location: Baltimore, Maryland;
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Family monthly co-payment: $86;
Co-payment as percent of income: 7.
Location: Baltimore, Maryland;
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Family monthly co-payment: $137;
Co-payment as percent of income: 9.
Location: Montgomery County, Maryland;
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Family monthly co-payment: $12;
Co-payment as percent of income: 2.
Location: Montgomery County, Maryland;
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Family monthly co-payment: $36;
Co-payment as percent of income: 4.
Location: Montgomery County, Maryland;
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Family monthly co-payment: $121;
Co-payment as percent of income: 10.
Location: Montgomery County, Maryland;
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Family monthly co-payment: $194;
Co-payment as percent of income: 13.
Location: Wicomico County, Maryland;
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Family monthly co-payment: $7;
Co-payment as percent of income: 1.
Location: Wicomico County, Maryland;
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Family monthly co-payment: $20;
Co-payment as percent of income: 2.
Location: Wicomico County, Maryland;
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Family monthly co-payment: $66;
Co-payment as percent of income: 5.
Location: Wicomico County, Maryland;
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Family monthly co-payment: $105;
Co-payment as percent of income: 7.
Location: Oregon;
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Family monthly co-payment: $42;
Co-payment as percent of income: 6.
Location: Oregon;
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Family monthly co-payment: $85;
Co-payment as percent of income: 8.
Location: Oregon;
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Family monthly co-payment: $157;
Co-payment as percent of income: 12.
Location: Oregon;
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Family monthly co-payment: $271;
Co-payment as percent of income: 18.
Source: Poverty threshold data were obtained from the U.S. Census
Bureau; family monthly income and co-payment as a percent of income are
our calculations based on data obtained from the U.S. Census Bureau and
the Illinois Department of Human Services, three local subsidy offices
in Maryland, and the Oregon Department of Human Resources; the family
monthly co-payments were obtained from the Illinois Department of Human
Services, three local subsidy offices in Maryland, and the Oregon
Department of Human Resources.
[End of table]
While co-payments can be considered as a percentage of family income,
they can also be considered as a percentage of the total reimbursement
rate; this provides some sense of the portion of the total fee borne by
the family and, to some extent, the benefit of participation in the
subsidy program. When considered in this way, a family‘s co-payment
represented from 2 percent to 80 percent of the reimbursement rate;
Oregon families paid the largest share of the reimbursement rate. For
example, in rural Linn County, families who earned 150 percent of the
federal poverty threshold were responsible for a monthly co-payment of
$271, which represented 80 percent of the reimbursement rate for a
family home provider. This share was significantly larger than that
paid by similar families in the rural communities of DeKalb County,
Illinois, and Wicomico County, Maryland, who were responsible for
paying 32 percent of the reimbursement rate for family home providers.
In addition, in Oregon and Illinois, rural families paid a larger share
of the reimbursement rate than families in urban and suburban
communities (see table 10). Families at the lowest income levels in
each community paid a relatively small share of the total reimbursement
rate.
Table 10: Family Co-Payments as a Percent of the Maximum Reimbursement
Rate for Child Care in Maryland, Illinois, and Oregon Communities for
Family Home Care:
Location: Chicago and DuPage County, Ill.
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Maximum reimbursement rate for family home care: $466;
Family monthly co-payment: $35;
Family co-payment as a percent of the maximum reimbursement rate: 7.
Location: Chicago and DuPage County, Ill.
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Maximum reimbursement rate for family home care: $466;
Family monthly co-payment: $65;
Family co-payment as a percent of the maximum reimbursement rate: 14.
Location: Chicago and DuPage County, Ill.
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Maximum reimbursement rate for family home care: $466;
Family monthly co-payment: $87;
Family co-payment as a percent of the maximum reimbursement rate: 19.
Location: Chicago and DuPage County, Ill.
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Maximum reimbursement rate for family home care: $466;
Family monthly co-payment: $134;
Family co-payment as a percent of the maximum reimbursement rate: 29.
Location: DeKalb County, Ill.
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Maximum reimbursement rate for family home care: $414;
Family monthly co-payment: $35;
Family co-payment as a percent of the maximum reimbursement rate: 9.
Location: DeKalb County, Ill.
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Maximum reimbursement rate for family home care: $414;
Family monthly co-payment: $65;
Family co-payment as a percent of the maximum reimbursement rate: 16.
Location: DeKalb County, Ill.
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Maximum reimbursement rate for family home care: $414;
Family monthly co-payment: $87;
Family co-payment as a percent of the maximum reimbursement rate: 21.
Location: DeKalb County, Ill.
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Maximum reimbursement rate for family home care: $414;
Family monthly co-payment: $134;
Family co-payment as a percent of the maximum reimbursement rate: 32.
Location: Baltimore, Md.
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Maximum reimbursement rate for family home care: $429;
Family monthly co-payment: $9;
Family co-payment as a percent of the maximum reimbursement rate: 2.
Location: Baltimore, Md.
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Maximum reimbursement rate for family home care: $429;
Family monthly co-payment: $26;
Family co-payment as a percent of the maximum reimbursement rate: 6.
Location: Baltimore, Md.
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Maximum reimbursement rate for family home care: $429;
Family monthly co-payment: $86;
Family co-payment as a percent of the maximum reimbursement rate: 20.
Location: Baltimore, Md.
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Maximum reimbursement rate for family home care: $429;
Family monthly co-payment: $137;
Family co-payment as a percent of the maximum reimbursement rate: 32.
Location: Montgomery County, Md.
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Maximum reimbursement rate for family home care: $596;
Family monthly co-payment: $12;
Family co-payment as a percent of the maximum reimbursement rate: 2.
Location: Montgomery County, Md.
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Maximum reimbursement rate for family home care: $596;
Family monthly co-payment: $36;
Family co-payment as a percent of the maximum reimbursement rate: 6.
Location: Montgomery County, Md.
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Maximum reimbursement rate for family home care: $596;
Family monthly co-payment: $121;
Family co-payment as a percent of the maximum reimbursement rate: 20.
Location: Montgomery County, Md.
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Maximum reimbursement rate for family home care: $596;
Family monthly co-payment: $194;
Family co-payment as a percent of the maximum reimbursement rate: 33.
Location: Wicomico County, Md.
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Maximum reimbursement rate for family home care: $325;
Family monthly co-payment: $7;
Family co-payment as a percent of the maximum reimbursement rate: 2.
Location: Wicomico County, Md.
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Maximum reimbursement rate for family home care: $325;
Family monthly co-payment: $20;
Family co-payment as a percent of the maximum reimbursement rate: 6.
Location: Wicomico County, Md.
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Maximum reimbursement rate for family home care: $325;
Family monthly co-payment: $66;
Family co-payment as a percent of the maximum reimbursement rate: 20.
Location: Wicomico County, Md.
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Maximum reimbursement rate for family home care: $325;
Family monthly co-payment: $105;
Family co-payment as a percent of the maximum reimbursement rate: 32.
Location: Portland and Washington County, Oregon:
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Maximum reimbursement rate for family home care: $386;
Family monthly co-payment: $42;
Family co-payment as a percent of the maximum reimbursement rate: 11.
Location: Portland and Washington County, Oregon:
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Maximum reimbursement rate for family home care: $386;
Family monthly co-payment: $85;
Family co-payment as a percent of the maximum reimbursement rate: 22.
Location: Portland and Washington County, Oregon:
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Maximum reimbursement rate for family home care: $386;
Family monthly co-payment: $157;
Family co-payment as a percent of the maximum reimbursement rate: 41.
Location: Portland and Washington County, Oregon:
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Maximum reimbursement rate for family home care: $386;
Family monthly co-payment: $271;
Family co-payment as a percent of the maximum reimbursement rate: 70.
Location: Linn County, Oregon;
Percent of federal poverty threshold: 75;
Family monthly income: $763;
Maximum reimbursement rate for family home care: $340;
Family monthly co-payment: $42;
Family co-payment as a percent of the maximum reimbursement rate: 12.
Location: Linn County, Oregon;
Percent of federal poverty threshold: 100;
Family monthly income: $1,017;
Maximum reimbursement rate for family home care: $340;
Family monthly co-payment: $85;
Family co-payment as a percent of the maximum reimbursement rate: 25.
Location: Linn County, Oregon;
Percent of federal poverty threshold: 125;
Family monthly income: $1,272;
Maximum reimbursement rate for family home care: $340;
Family monthly co-payment: $157;
Family co-payment as a percent of the maximum reimbursement rate: 46.
Location: Linn County, Oregon;
Percent of federal poverty threshold: 150;
Family monthly income: $1,526;
Maximum reimbursement rate for family home care: $340;
Family monthly co-payment: $271;
Family co-payment as a percent of the maximum reimbursement rate: 80.
Source: Our calculations of family income were based on data obtained
from the U.S. Census Bureau; maximum reimbursement rates for family
home care in Illinois were based on our calculations of data obtained
from the Illinois Department of Human Services, three local subsidy
offices in Maryland, and the Oregon Department of Human Resources;
family monthly co-payments were obtained from the Illinois Department
of Human Services, three local subsidy offices in Maryland, and the
Oregon Department of Human Resources; family co-payments as a percent
of the maximum reimbursement rate are our calculations based on data
obtained from the Illinois Department of Human Services, three local
subsidy offices in Maryland, and the Oregon Department of Human
Resources.
[End of table]
According to State and Local Officials, Reimbursement Rates May Not
Necessarily Limit the Child Care Available to Families:
Even though our analysis showed that some reimbursement rates did not
afford hypothetical families much choice among specific types of child
care, state and local officials noted that actual families‘ child care
options may not be strictly limited by the reimbursement rates. In all
three states we visited, families could choose providers whose fees
exceeded the state-established reimbursement rates”by paying the co-
payment and the difference between the providers‘ fees and the
reimbursement rates. Families were responsible for these additional
payments, and states were generally not part of these financial
arrangements with child care providers. State officials could not
provide data on how often this occurred.
In other instances, state and local officials told us they believed
that some regulated providers subsidized the state child care program
by accepting maximum reimbursement rates as full payment”even though
the rates were less than the fees charged nonsubsidized families. These
officials said that some providers were willing to do so because there
was more certainty in receiving state subsidies than private payments
from nonsubsidized families. They also told us that some child care
providers may build a loyal customer base by accepting reimbursement
rates as full payment until families can afford to pay the extra
amount. Again, state officials could not provide data on how often this
occurred or what adjustments providers made, if any, to accommodate any
such foregone revenues.
Consistent with federal law, all three state child care programs also
allowed subsidized families to use informal child care providers (i.e.,
unregulated, legally operating providers) in addition to formal,
regulated providers. Subsidized families in the three states we visited
varied in how frequently they chose this option. States estimated that
25 percent of subsidized families in Maryland, 57 percent in Illinois,
and 60 percent in Oregon relied on informal care providers. In our
survey, state officials reported that families chose informal providers
for many different reasons including convenience, flexibility in hours,
and lower costs. State and local officials mentioned that some informal
child care providers were willing to forego co-payments because they
were aware of the families‘ financial circumstances. They could not
provide data on how often this occurred.
States We Visited Generally Reimbursed Informal Providers at Lower
Rates:
While subsidized families could choose informal child care
arrangements, the states we visited generally set lower reimbursement
rates for these providers. For example, table 11 shows that informal
providers in Baltimore received a maximum reimbursement rate of $215
which was about half of the $429 received by family home providers. See
appendix II for information about the reimbursement rates and family co-
payments for informal providers in the other eight communities we
visited.
Table 11: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-Person Family (Parent and 2-year-old) Using Informal
Providers in Baltimore, Maryland:
Percent of federal poverty threshold: 75;
Annual family income: $9,155;
Family monthly income: $763;
Family monthly co-payment: $4;
Co-payment as percent of family monthly income: less than 1;
State share of monthly child care expenses: $211;
Maximum reimbursement rate: $215.
Percent of federal poverty threshold: 100;
Annual family income: $12,207;
Family monthly income: $1,017;
Family monthly co-payment: $13;
Co-payment as percent of family monthly income: 1;
State share of monthly child care expenses: $202;
Maximum reimbursement rate: $215.
Percent of federal poverty threshold: 125;
Annual family income: $15,259;
Family monthly income: $1,272;
Family monthly co-payment: $49;
Co-payment as percent of family monthly income: 4;
State share of monthly child care expenses: $166;
Maximum reimbursement rate: $215.
Percent of federal poverty threshold: 150;
Annual family income: $18,311;
Family monthly income: $1,526;
Family monthly co-payment: $88;
Co-payment as percent of family monthly income: 6;
State share of monthly child care expenses: $127;
Maximum reimbursement rate: $215.
Source: Federal poverty threshold, annual income, and family monthly
income are our calculations based on U.S. Census Bureau data; family co-
payment and maximum reimbursement rate was obtained from the local
subsidy office in Baltimore, and co-payment as percent of family
monthly income and state share of monthly child care expenses are our
calculations based on data obtained from the local subsidy office in
Baltimore.
[End of table]
Nonetheless, states varied considerably in the distinction drawn
between rates paid to informal providers and those paid to formal,
regulated family home providers. In Oregon, the rates were quite close;
in Illinois and Maryland, they were much further apart. States made
these different choices with regard to reimbursement rates despite the
lack of information they reported having on informal providers‘ fees or
the relationship between the rates and the supply of such care.
In the three states we visited, variations in the use of informal child
care providers appeared to be influenced by state policies. Illinois
and Oregon reported almost the same percentage of families selecting
informal providers (57 percent and 60 percent, respectively). Yet,
Illinois‘ maximum reimbursement rates for informal providers was only
about half as high as established for regulated family homes, while
Oregon‘s maximum reimbursement rate for informal providers was nearly
the same as for regulated family homes. Moreover, like Illinois,
Maryland established maximum reimbursement rates for informal providers
that were about half those for regulated family home providers, but
reported a much smaller portion of subsidized families (25 percent)
selecting informal child care providers. However, in Illinois, informal
providers may provide full-time child care in the child‘s home or in
their own home. In Maryland, only relatives may provide full-time child
care in their own homes without seeking state licensure, and non-
related, informal providers can provide such services only in the
child‘s home. These policy differences may affect informal providers‘
willingness to participate in the states‘ subsidized child care
programs. Also, according to a Maryland state official, reimbursement
rates for formal providers were increased, in part, as an incentive for
informal providers to become licensed.
Concluding Observations:
In the 6 years since passage of PRWORA and the creation of the CCDF,
states have exercised broad flexibility in designing child care subsidy
programs to support parents‘ workforce participation by enhancing their
access to affordable child care. In doing so, states have made varied
choices regarding which families will be eligible for child care
subsidies, how much those families must pay for child care, and how
much the state will supplement these payments to offer choice among
additional providers. States‘ decisions on these issues involve trade-
offs and may have unintended as well as intended effects. For example,
in the three states we visited, income eligibility standards varied
from just over 40 percent to 70 percent of the state median income.
However, the state with the highest eligibility standard, perhaps as a
consequence, generally offered the lowest reimbursement rates.
Similarly, based on our analysis of nine communities in 3 states, we
observed that states were setting reimbursement rates in ways that had
widely different implications for the number and type of child care
providers from which a hypothetical family could choose, even across
different communities within the state. In Illinois, the same maximum
reimbursement rates were established for child care providers in
Chicago and neighboring DuPage County, perhaps due to concerns for
compensating providers equitably across political boundaries. However,
the markedly different prices charged by providers in different
localities made for very large differences in the selection that these
rates afforded eligible families. Finally, the issue of selection or
usage is more complex than reimbursement rates alone; states‘ policies
such as licensing provisions are also important because they affect
parents‘ choices and the supply of child care providers.
Agency Comments:
The Department of Health and Human Services provided written comments
on a draft of this report. These comments are reprinted in appendix
III. HHS took no issue with our principle findings and indicated that
the report raises important questions about information that would be
helpful on the potential effects of reimbursement rates on families and
other aspects of the child care market. In this connection, HHS cited
studies it funds”through the CCDF set aside for research,
demonstration, and evaluation”and its efforts to encourage states to
study the relationship between state policies (including those related
to child care subsidies) and the interrelationship between state policy
and child care markets. HHS also provided technical comments, which we
incorporated as appropriate.
As requested, unless you publicly announce its contents earlier, we
plan no further distribution of this report until 30 days after the
date of this letter. At that time we will send copies of this report to
the Secretary of Health and Human Services, appropriate congressional
committees, and other interested parties. In addition, the report will
be available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov]. If you or your staffs have any questions about
this report, please contact me on (202) 512-7215. Other staff who
contributed to this report are listed in appendix IV.
Signed by:
Marnie S. Shaul:
Director, Education, Workforce, and Income Security Issues:
[End of section]
Appendix I: Scope and Methodology:
GAO Survey of State Child Care Officials:
To describe how states set reimbursement rates, we conducted a mail
survey of the state child care officials in 50 states and the District
of Columbia, of which 49 responded for an overall response rate of 96
percent. The survey included questions on market rate surveys and other
factors that states may have considered in setting rates. [Footnote 20]
While we asked state child care administrators to assess the importance
of various factors in setting reimbursement rates, we did not
independently verify their assessments by, for example, comparing
historical data on these factors with actual state decisions. In
addition to gathering this information through our survey, we
interviewed state child care program officials in Illinois, Maryland,
and Oregon to learn how they set reimbursement rates. We also
interviewed consultants who assisted state program officials with
analyzing their market rate survey results.
Case Studies in Nine Communities across Three States:
In selecting the states for our field work, we sought to include states
that had (1) child care resource and referral (CCR&R) networks with
comprehensive data on providers and the fees they charged; (2) model
market rate surveys; (3) varying income eligibility limits,
reimbursement rates, and co-payment fees; (4) different utilization
patterns for informal child care providers; and (5) some geographic
diversity. We visited three states and met with officials of state,
local, and community-based organizations in three locations in each
state”one urban, one suburban, and one rural. Our field work was
performed in Chicago, DuPage County, and DeKalb County, Illinois;
Baltimore, Montgomery County, and Wicomico County, Maryland; and
Portland, Washington County, and Linn County, Oregon.
To determine the extent to which reimbursement rates were likely to
afford hypothetical families access to specific types of child care
providers, we obtained data on providers‘ fees for full-time care from
CCR&R network databases in each of the three states we visited. The
local CCR&R offices in each of the communities we visited collected
actual information on providers‘ fees. The local CCR&R offices
submitted the information about these fees to their networks that
compiled this information throughout the state. CCR&R networks supplied
us with provider fee data for each of the nine communities we visited.
CCR&R databases were relied on because the data on providers‘ fees were
readily available and current. While we did not conduct tests for
accuracy or reliability of the CCR&R databases, state officials and
CCR&R staff expressed confidence in the accuracy and comprehensiveness
of the data.
In calculating the percentage of providers who had fees that were equal
to or less than the state-established reimbursement rates, we included
those providers who indicated a willingness to accept Child Care and
Development Fund (CCDF) funded subsidies. This information was self-
reported by most child care providers. In instances where providers did
not report whether they accepted the state‘s subsidy or indicate a
willingness to accept the subsidy, they were included in the total
number of providers in a community but were not counted as accepting
the subsidy.
Since Illinois provider fees were reported as a weekly rate and
reimbursement rates were set on a daily basis, both sets of numbers
were converted to reflect monthly provider fees and monthly
reimbursement rates. Using a multiplying factor of 4.33, representing
the average number of weeks in a month, we converted providers‘ fees
from a weekly to monthly basis. [Footnote 21] Using a multiplying
factor of 21.65, representing the average number of work days in a
month, we converted daily reimbursement rates to monthly rates.
Because Maryland provider fees were reported as a weekly rate and
reimbursement rates were set on a monthly basis, we converted the
provider fees so we could compare them with the state-established
reimbursement rates. Using a multiplying factor of 4.33, representing
the average number of weeks in a month, we converted providers‘ fees
from a weekly to monthly basis.
Oregon provider fee data were also reported in different time
increments than the state-established reimbursement rates; however, we
did not convert these fee data to a single common unit. Providers
reported their fees in hourly, daily, weekly, or monthly increments;
the state established hourly and monthly rates. Oregon consultants
advised us not to convert provider fee data because providers who
charged in different time increments may operate differently. The
consultants suggested that providers who usually charge in less than
monthly increments might offer slight discounts to families who use
their services for a month or longer.
As a consequence, we directly compared providers‘ fees reported in
hours and months to the state‘s hourly and monthly reimbursement rates.
[Footnote 22] For providers‘ fees reported in days or weeks, we divided
monthly reimbursement rates by 21 (slightly less than the average
number of work days in a month to account for a discount) to determine
daily rates. In addition, we multiplied these calculated daily rates by
5 to determine weekly rates. We discussed this approach with the
consultant who conducted market rate studies for the state. Because of
the complexity of converting data on providers‘ fees, we did not
calculate a median monthly provider fee for the three communities we
visited in Oregon.
In determining hypothetical families‘ access to the nine communities
across three states, in one case, we limited the scope of our analysis.
To prevent geographical differences in income from limiting the
usefulness of our analysis and because of the much larger size of the
city of Chicago, we included only that area of Chicago that had a lower
average median income. We selected the lower-income area based on
preliminary analysis that showed a high percentage of providers in the
area indicated a willingness to accept subsidies. Although some higher-
income areas are covered and some lower-income areas excluded, for ease
of analysis we included all contiguous zip codes south of the Chicago
central business district.
Since family co-payments vary by such factors as family income and
family size, and the fees that providers charge also vary depending on
a child‘s age and the type of child care, we used a hypothetical two-
person family (consisting of a parent and 2-year-old child) in our
analysis. This family size was selected after reviewing fiscal year
1999 Temporary Assistance to Needy Children (TANF) recipient data that
showed that most single parent families have one child, and most TANF
cases that include adults have only one parent. [Footnote 23] The age
of the hypothetical child was selected after reviewing CCDF recipient
data on the ages of children served. To determine the percent of family
income that would be spent for co-payments in the three states, we
varied family income from 75 percent of the federal poverty threshold
to 150 percent of the federal poverty threshold. We used the same
procedure in determining the percent of the reimbursement rates
represented by a family‘s required co-payment.
Other Related Activities:
At the federal level, we interviewed officials at the Department of
Health and Human Services in Washington, D.C., and regional offices in
Chicago, Illinois, and Philadelphia, Pennsylvania. We reviewed
documents concerning CCDF legislation, HHS rules and regulations, HHS
data and reports on access for low-income families, and obtained copies
of states‘ CCDF plans for fiscal years 2002-2003 that contained the
states‘ co-payment fee structures, and generally included information
about market rate survey results and reimbursement rates. We also
interviewed child care policy experts and reviewed current literature
on subsidized child care.
[End of section]
Appendix II: Reimbursement Rates for Informal Child Care Providers in
the Remaining Eight Communities:
For the three states we visited, we obtained data on family monthly co-
payments and reimbursement rates for informal providers. These states
generally did not collect information on the fees charged by informal
providers. Moreover, local CCR&R offices generally did not collect
information on informal child care providers or include them in their
databases. As shown in tables 12 to 16, each of the three states we
visited paid rates that were lower for informal care than for other
types of care. States made different choices regarding such rates
despite the lack of information on informal providers‘ fees, or the
effect of established rates on the supply of such care. See tables 12
to 16 for reimbursement rates and family co-payments for informal
providers in eight communities we visited. Information on Baltimore,
Maryland, is shown in table 11.
Table 12: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-Person Family (Parent and 2-year-old) Using Informal
Providers in Chicago (south side), DuPage County, and DeKalb County,
Illinois:
Percent of federal poverty threshold: 75;
Annual family income: $9,155;
Family monthly income: $763;
Family monthly co-payment: $35;
Co-payment as percent of family monthly income: 5;
State share of monthly child care expenses: $170;
Maximum reimbursement rate: $205.
Percent of federal poverty threshold: 100;
Annual family income: $12,207;
Family monthly income: $1,017;
Family monthly co-payment: $65;
Co-payment as percent of family monthly income: 6;
State share of monthly child care expenses: $140;
Maximum reimbursement rate: $205.
Percent of federal poverty threshold: 125;
Annual family income: $15,259;
Family monthly income: $1,272;
Family monthly co-payment: $87;
Co-payment as percent of family monthly income: 7;
State share of monthly child care expenses: $118;
Maximum reimbursement rate: $205.
Percent of federal poverty threshold: 150;
Annual family income: $18,311;
Family monthly income: $1,526;
Family monthly co-payment: $134;
Co-payment as percent of family monthly income: 9;
State share of monthly child care expenses: $71;
Maximum reimbursement rate: $205.
Source: Federal poverty threshold, annual income and family monthly
income are our calculations based on U.S. Census Bureau data; family co-
payment and maximum reimbursement rate were obtained from the Illinois
Department of Human Services; and co-payment as percent of family
monthly income and state share of monthly child care expenses are our
calculations based on data obtained from the Illinois Department of
Human Services.
[End of table]
Table 13: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-Person Family (Parent and 2-year-old) Using Informal
Providers in Montgomery County, Maryland:
Percent of federal poverty threshold: 75;
Annual family income: $9,155;
Family monthly income: $763;
Family monthly co-payment: $6;
Co-payment as percent of family monthly income: less than 1;
State share of monthly child care expenses: $292;
Maximum reimbursement rate: $298.
Percent of federal poverty threshold: 100;
Annual family income: $12,207;
Family monthly income: $1,017;
Family monthly co-payment: $18;
Co-payment as percent of family monthly income: 2;
State share of monthly child care expenses: $280;
Maximum reimbursement rate: $298.
Percent of federal poverty threshold: 125;
Annual family income: $15,259;
Family monthly income: $1,272;
Family monthly co-payment: $69;
Co-payment as percent of family monthly income: 5;
State share of monthly child care expenses: $229;
Maximum reimbursement rate: $298.
Percent of federal poverty threshold: 150;
Annual family income: $18,311;
Family monthly income: $1,526;
Family monthly co-payment: $122;
Co-payment as percent of family monthly income: 8;
State share of monthly child care expenses: $176;
Maximum reimbursement rate: $298.
Source: Federal poverty threshold, annual income and family monthly
income are our calculations based on U.S. Census Bureau data; family co-
payment and maximum reimbursement rate were obtained from the local
subsidy office in Montgomery County; and co-payment as percent of
family monthly income and state share of monthly child care expenses
are our calculations based on data obtained from the local subsidy
office in Montgomery County.
[End of table]
Table 14: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-Person Family (Parent and 2-year-old) Using Informal
Providers in Wicomico County, Maryland:
Percent of federal poverty threshold: 75;
Annual family income: $9,155;
Family monthly income: $763;
Family monthly co-payment: $3;
Co-payment as percent of family monthly income: less than 1;
State share of monthly child care expenses: $160;
Maximum reimbursement rate: $163.
Percent of federal poverty threshold: 100;
Annual family income: $12,207;
Family monthly income: $1,017;
Family monthly co-payment: $10;
Co-payment as percent of family monthly income: less than 1;
State share of monthly child care expenses: $153;
Maximum reimbursement rate: $163.
Percent of federal poverty threshold: 125;
Annual family income: $15,259;
Family monthly income: $1,272;
Family monthly co-payment: $37;
Co-payment as percent of family monthly income: 3;
State share of monthly child care expenses: $126;
Maximum reimbursement rate: $163.
Percent of federal poverty threshold: 150;
Annual family income: $18,311;
Family monthly income: $1,526;
Family monthly co-payment: $67;
Co-payment as percent of family monthly income: 4;
State share of monthly child care expenses: $96;
Maximum reimbursement rate: $163.
Source: Federal poverty threshold, annual income and family monthly
income are our calculations based on U.S. Census Bureau data; family co-
payment and maximum reimbursement rate were obtained from the local
subsidy office in Wicomico County; and co-payment as percent of family
monthly income and state share of monthly child care expenses are our
calculations based on data obtained from the local subsidy office in
Wicomico County.
[End of table]
Table 15: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-person Family (Parent and 2-year-old) Using Informal
Providers in the city of Portland and Washington County, Oregon:
Percent of federal poverty threshold: 75;
Annual family income: $9,155;
Family monthly income: $763;
Family monthly co-payment: $42;
Co-payment as percent of family monthly income: 6;
State share of monthly child care expenses: $319;
Maximum reimbursement rate: $361.
Percent of federal poverty threshold: 100;
Annual family income: $12,207;
Family monthly income: $1,017;
Family monthly co-payment: $85;
Co-payment as percent of family monthly income: 8;
State share of monthly child care expenses: $276;
Maximum reimbursement rate: $361.
Percent of federal poverty threshold: 125;
Annual family income: $15,259;
Family monthly income: $1,272;
Family monthly co-payment: $157;
Co-payment as percent of family monthly income: 12;
State share of monthly child care expenses: $204;
Maximum reimbursement rate: $361.
Percent of federal poverty threshold: 150;
Annual family income: $18,311;
Family monthly income: $1,526;
Family monthly co-payment: $271;
Co-payment as percent of family monthly income: 18;
State share of monthly child care expenses: $90;
Maximum reimbursement rate: $361.
Source: Federal poverty threshold, annual income and family monthly
income are our calculations based on U.S. Census Bureau data; family co-
payment and maximum reimbursement rate were obtained from the Oregon
Department of Human Resources; and co-payment as percent of family
monthly income and state share of monthly child care expenses are our
calculations based on data obtained from the Oregon Department of Human
Resources.
[End of table]
Table 16: Family Co-Payment and State Share of Monthly Child Care
Expenses for a 2-person Family (Parent and 2-year-old) Using Informal
Providers in Linn County, Oregon:
Percent of federal poverty threshold: 75;
Annual family income: $9,155;
Family monthly income: $763;
Family monthly co-payment: $42;
Co-payment as percent of family monthly income: 6;
State share of monthly child care expenses: $276;
Maximum reimbursement rate: $361.
Percent of federal poverty threshold: 100;
Annual family income: $12,207;
Family monthly income: $1,017;
Family monthly co-payment: $85;
Co-payment as percent of family monthly income: 8;
State share of monthly child care expenses: $233;
Maximum reimbursement rate: $361.
Percent of federal poverty threshold: 125;
Annual family income: $15,259;
Family monthly income: $1,272;
Family monthly co-payment: $157;
Co-payment as percent of family monthly income: 12;
State share of monthly child care expenses: $161;
Maximum reimbursement rate: $361.
Percent of federal poverty threshold: 150;
Annual family income: $18,311;
Family monthly income: $1,526;
Family monthly co-payment: $271;
Co-payment as percent of family monthly income: 18;
State share of monthly child care expenses: $47;
Maximum reimbursement rate: $361.
Source: Federal poverty threshold, annual income and family monthly
income are our calculations based on U.S. Census Bureau data; family co-
payment and maximum reimbursement rate were obtained from the Oregon
Department of Human Resources; and co-payment as percent of family
monthly income and state share of monthly child care expenses are our
calculations based on data obtained from the Oregon Department of Human
Resources.
[End of table]
[End of section]
Appendix III: Appendix III: Comments from the Department of Health and
Human Services:
Department Of Health And Human Services:
Administration For Children And Families:
Office of the Assistant Secretary, Suite 6:
370 L'Enfant Promenade, S.W.
Washington, D.C. 20447:
September 11, 2002:
To: Marnie S. Shaul, Director:
Education, Workforce, and Income Security Issues:
United States General Accounting Office:
From: [Signed by] Wade F. Horn, Ph.D.
Assistant Secretary for Children and Families:
Subject: Comments on the General Accounting Office's Draft Report
"States Exercise Flexibility in Setting Reimbursement Rates and
Providing Access for Low-Income Children" (GAO-02-894):
Attached are the Administration for Children and Families' comments on
the above-referenced report which explores the relationships among
State provider reimbursement rates, family co-payments, and access to
child care for families being served through the Child Care and
Development Fund (CCDF).
We appreciate the opportunity to comment on the report. If you have any
questions, please contact Shannon Christian, Child Care Bureau
Associate Commissioner at (202) 690-6782.
Attachments:
Comments Of The Administration For Children And Families On The General
Accounting Office's Draft Report, "States Exercise Flexibility In
Setting Reimbursement Rates And Providing Access For Low-Income
Children" (GAO-02-894):
The Administration for Children and Families (ACF), Administration for
Children, Youth and Families (ACYF), Child Care Bureau (CCB)
appreciates the opportunity to comment on this draft report. The report
addresses how States set provider reimbursement rates and the extent to
which subsidies and co-payments provide families with access to a range
of child care options.
GAO Concluding Observations:
In the six years since passage of Personal Responsibility and Work
Opportunity Reconciliation Act (PRWORA) and the creation of the Child
Care Development Fund (CCDF), States have exercised broad flexibility
in designing child care subsidy programs to support parents' workforce
participation by enhancing their access to affordable child care. In
doing so, States have made varied choices regarding which families will
be eligible for child care subsidies, how much those families must pay
for child care, and how much the State will supplement these payments
to offer choice among additional providers. States' decisions on these
issues involve tradeoffs and may have unintended as well as intended
efforts. For example, in the three States we visited, income
eligibility standards varied from just over 40 percent to 70 percent of
the State median income. However, the State with the highest
eligibility standard, perhaps as a consequence, generally offered the
lowest reimbursement rates. Similarly, based on our analysis of nine
communities in three States, we observed that States were setting
reimbursement rates in ways that had widely different implications for
the number and type of child care providers from which a hypothetical
family could choose, even across different communities within the
State. In Illinois, the same maximum reimbursement rates were
established for child care providers in Chicago and neighboring DuPage
County, perhaps due to concerns for compensating providers equitably
across political boundaries. However, the markedly different prices
charged by providers in different localities made for very large
differences in the selection that these rates afforded eligible
families. Finally, the issue of selection or usage is more complex than
reimbursement rates alone; States' policies such as licensing
provisions are also important because they affect parents' choices and
the supply of child care providers.
ACF Comment:
The methodologies employed in this study were carefully thought out and
designed and the report gives attention to the complex issues
associated with reimbursement rates and co-payments. GAO surveyed
States regarding market rate surveys and provider reimbursement rates
and conducted on-site interviews in nine communities in three States.
States told GAO that while market rate survey results are important in
setting reimbursement rates, budget considerations and policy goals are
also strong influences. In most of the communities visited, GAO found
that maximum reimbursement rates were not sufficient to pay a
substantial number of providers what those providers charge privately
paying families. And, yet, most child care centers and many family home
providers said they were willing to serve subsidized families.
GAO's findings highlight the difficulties in understanding child care
markets and the effects of State policies on the decision child care
providers and parents make. Within available funding, States make
policy decisions that work together with local economic conditions,
employment opportunities, parent needs and preferences, and child care
supply issues. In sum, these create unique child care markets and
varying patterns of child care utilization across States and
communities.
The CCB and ACF regional offices support States in exercising the
flexibility the CCDF provides and in making sound child care policy and
program decisions. States must submit biennial plans that describe how
they intend to implement CCDF. Plan approval requires that States
demonstrate that they have conducted a market rate survey within two
years. States must also certify that their reimbursement rates are
adequate to provide eligible families with a range of child care
choices. The ACF has refused to approve State plans on a number of
occasions when a State was not in compliance with the market rate
survey requirement. In these instances, States were given a time-
limited period in which to comply.
Directly and through a network of technical assistance providers, ACF
provides technical assistance to States including regional meetings,
conferences, written materials, peer consultation, and on-site
technical assistance. In recent years, the CCB sponsored a leadership
forum and disseminated a written guide for States on conducting child
care market rate surveys. Through its National Child Care Information
Center (NCCIC), the CCB provides on-site technical assistance to assist
States with complex policy and program issues including alternative
approaches to reimbursement rates and family co-pays.
Many questions are raised by this report including:
* Why are providers willing to serve subsidized children even though
State reimbursement rates are lower than their customary fees?
* Does this have implications to provider financial viability, child
care worker wages and turnover, and ultimately, child care quality?
* To what extent are subsidized parents required to make up the
difference between what their provider charges and the State's
reimbursement rates?
* Do State maximum reimbursement rates influence the market price of
care, especially in low-income communities?
* Are in-home and other unregulated caregivers more likely to waive
parent co-payments? If so, does this encourage subsidized families to
choose such care?
The CCB seeks to address these and other questions in several ways.
Through the CCDF set-aside for research, demonstration and evaluation,
the CCB funds studies intended to provide answers to pressing child
care policy questions. In FY 2001, the CCB funded a multi-site, seven
year, $9 million study, that will use experimental methods to assess
the effects of variations in child care subsidy policies. In addition,
through its Research Partnership and State Data and Research Capacity
grants, the CCB actively encourages States to study the
interrelationships between State policies and State and local child
care markets using data collected in the course of operating subsidy,
licensing, and resource and referral programs.
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Betty Ward-Zukerman, (202) 512-2732, wardzukermanb@gao.gov:
Tim Hall, (202) 512-7192, hallt@gao.gov:
Staff Acknowledgments:
The following people also made important contributions to this report:
Danielle T. Jones; R. Scott McNabb; Cynthia Decker; Patrick diBattista;
Joel Grossman; Elsie Picyk; Bill Keller; and Daniel Schwimer.
[End of section]
Related GAO Products:
Child Care: States Have Undertaken a Variety of Quality Improvement
Initiatives, but More Evaluations of Effectiveness Are Needed. GAO-02-
897. Washington, D.C.: September 6, 2002.
Early Childhood Programs: The Use of Impact Evaluations to Assess
Program Effects. GAO-01-542. Washington, D.C.: April 16, 2001.
Child Care: States Increased Spending on Low-Income Families. GAO-01-
293. Washington, D.C.: February 2, 2001.
Child Care: How Do Military and Civilian Center Costs Compare? GAO/HEHS-
00-7. Washington, D.C.: October 14, 1999.
Child Care: Use of Standards to Ensure High Quality Care. GAO/HEHS-98-
223R. Washington, D.C.: July 31, 1998.
Welfare Reform: States‘ Efforts to Expand Child Care Programs. GAO/HEHS-
98-27. Washington, D.C.: January 13, 1998.
Welfare Reform: Implications of Increased Work Participation for Child
Care. GAO/HEHS-97-75. Washington, D.C.: May 1997.
[End of section]
Footnotes:
[1] For this report, families are deemed to have access to specific
child care providers if the state maximum reimbursement rate is equal
to or greater than the provider‘s fees.
[2] PRWORA allows states the flexibility to transfer up to 30 percent
of their TANF funds to CCDF. These transfer funds are included in the
federal expenditures of CCDF for fiscal years 1996 and 2000.
[3] Discretionary funds are allocated according to formulas specified
in the Child Care and Development Block Grant Act. Mandatory, or
guaranteed, funds are fixed amounts based on each state‘s historic
levels of child care spending related to Aid to Families with Dependent
Children.
[4] In the states we visited, when providers‘ fees were less than the
maximum reimbursement rate, states reduced their subsidies and family
co-payments remained the same.
[5] For 2001, the federal poverty threshold for a 2-person family,
including an adult under age 65 and a child under 18 years of age, is
$12,207.
[6] Child care providers may elect not to participate in the state
child care subsidy program.
[7] Vouchers are certificates indicating that the state will pay a
specific amount of the child care fee to a provider who is chosen by
the family.
[8] John Tapogna and Tara Witt, ECONorthwest, Making the Transition to
Self-Sufficiency In Oregon, September 30, 1998.
[9] According to written comments from HHS, the department has not
imposed monetary sanctions for failing to comply with CCDF equal access
provisions; however, in a number of instances, HHS has refused to
approve state plans because states had not conducted a market rate
survey within the period stipulated in the regulations. In such
instances, states were given a limited time period to come into
compliance, and HHS commented that this approach had worked in each
case.
[10] Throughout the report, when referring to the number of states that
responded to our survey, we are including the District of Columbia in
the 49 jurisdictions. Child care officials in Florida and New Jersey
did not respond to our questionnaire.
[11] The 1999 market rate survey results used by these states were more
than 2 years older than their fiscal year 2002-2003 state CCDF plans.
Even though 10 states reported that they did not refer to their most
recent market rate survey results, 4 of these states reported that
reimbursement rates had been incrementally increased.
[12] Some states may not have surveyed unregulated providers because of
difficulties in identifying them and obtaining information about them.
[13] Of the remaining 18 states that reported, 10 states set rates
below the 75th percentile based on the most recent market rate survey,
and 8 states set rates using various other methods. Three states did
not respond to this item in our questionnaire.
[14] We surveyed child care officials in March 2002 and their responses
reflected their views as of that date.
[15] In some cases, state child care funds can be used to set
eligibility limits beyond 85 percent of SMI.
[16] This family size was selected after reviewing fiscal year 1999
TANF recipient data that showed that most single parent families have
one child. Most TANF cases that include adults have only one parent.
TANF data were used because HHS did not have similar data on the family
composition of those using CCDF subsidies.
[17] In the three states we visited, co-payments did not vary by type
of care for formal, regulated providers; they varied in one state
(Maryland) based on geography and in all three states based on family
income and size. Co-payments for families using informal providers were
the same as those for formal providers except in Maryland where they
were less.
[18] In all three states we visited, 2-person families with incomes at
200 percent of the federal poverty threshold ($2,034 per month)
exceeded the income eligibility limits for subsidized child care.
[19] Since March 2000, Oregon has required certain families who are
eligible for the state‘s subsidized child care program to pay no more
than $25 in co-payments for the first 2 months. These smaller co-
payments apply to, among others, families who have left TANF for
employment, and those families applying for subsidized child care
because of a change in their circumstances, such as families who are
newly employed, families who lost their low-cost child care
arrangements, and families who are no longer able to afford child care.
[20] Prior to administering the questionnaire, we pre-tested it in
three jurisdictions.
[21] We used the same weekly conversion factor (4.33) as used by a
consulting firm contracted by the Maryland Department of Human
Resources.
[22] Oregon has standard and enhanced reimbursement rates. Enhanced
reimbursement rates are paid to child care centers and group homes that
are certified and to family home providers and certification-exempt
centers that meet professional development requirements. Since most
Oregon providers qualify for enhanced reimbursement rates, these rates
were used in our calculations.
[23] TANF data were used because HHS did not have similar data on
family composition of those using CCDF subsidies.
[End of section]
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