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History and Legislative Context for Waivers

Public Law 103-432, authorized by Congress in 1994, introduced the concept of Federal waivers to child welfare programs. Conceived as a strategy for generating new knowledge about innovative and effective child welfare practices, waivers grant States flexibility in the use of Federal funds for alternative services and supports that promote safety and permanency for children in the child protection and foster care systems. The 1994 law authorized the Department of Health and Human Services to approve a total of ten child welfare waiver demonstration projects. The Adoption and Safe Families Act (ASFA) of 1997 extended and expanded the authority to use waivers for child welfare programs, authorizing the Secretary of Health and Human Services to approve up to ten new demonstration projects each year. Through the waivers, States may spend Federal funds in a manner not normally allowed under current Federal laws and regulations in support of innovative child welfare practices. Knowledge gained through these waivers provides a valuable source of information to inform changes in policy and practice aimed at improving service delivery and enhancing the achievement of national child welfare priorities.

Federal child welfare waivers primarily affect the use of funds under title IV-E of the Social Security Act, which applies to payments for foster care. Available on an unlimited entitlement basis, title IV-E reimburses States for a portion of foster care maintenance expenses paid on behalf of eligible children and for related administrative costs. Among the requirements for eligibility is that children be removed from a family that would have qualified for the former AFDC¹ grant under guidelines in effect in July 1996. Through the child welfare waiver legislation, States may apply to use title IV-E funds for supports and services other than foster care maintenance payments that protect children from abuse and neglect, preserve families, and promote permanency. Under a waiver, States may also expend title IV-E funds on non-IV-E eligible children. When implementing a waiver demonstration, States must remain in compliance with the following provisions of title IV-E:

• All requirements relating to the conduct of periodic foster care reviews;

• Requirements specifying safeguards for children during out-of-home placement;

• Required permanency hearings for children in State custody; and

• Requirements governing information to be included in a foster child's case plan.

The Department of Health and Human Services typically approves child welfare waivers for up to five years, although at the discretion of the Secretary they may be extended beyond five years. In addition to the provisions described above, waiver demonstrations must remain cost neutral to the Federal government (i.e., States cannot receive more in Federal reimbursement than the State would have received in the absence of the waiver) and they must undergo rigorous program evaluation to determine their efficacy. Since 1996, 17 States have implemented 25 child welfare waiver demonstration components through 20 title IV-E agreements.² Some States have multiple waiver agreements, and some waiver agreements have multiple components. These projects examine innovative child welfare service strategies in several areas, including:

• Assisted guardianship/kinship care;

• Capped IV-E allocations and flexible funding to local agencies;

• Managed care payment systems;

• Services for caregivers with substance use disorders;

• Intensive service options;

• Enhanced training for child welfare staff;

• Adoption services; and

• Tribal administration of IV-E funds

This synthesis paper focuses specifically on the experiences and evaluation findings of States that have implemented title IV-E capped allocation/flexible funding waiver demonstrations. Since 1996, four States - Indiana, Ohio, Oregon, and North Carolina - have implemented flexible funding waiver demonstrations. All four states have recently received five-year extensions of their flexible funding waivers into 2009.

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Growth of Interest in Flexible Funding Waivers

Throughout the 1990s, several trends in child welfare services contributed to a growing interest in waivers that offer flexibility to States and local municipalities in spending Federal title IV-E funds while limiting the total IV-E allocations available for services. Key factors that have provided impetus to States in developing flexible funding waivers are outlined below.

Growth in Out-of-Home Placement Costs

The 1990s witnessed spiraling costs for foster care placements throughout the country. As highlighted by the experiences of States with flexible funding waivers, three factors have contributed to these rising costs: (1) increased costs of care; (2) the growing number of children in need of placement (especially in expensive group and residential care settings); and (3) increased lengths of stay in out-of-home placement. For example:

• Ohio's waiver proposal reported that its public child protection system was buckling under the financial weight of out-of-home placement costs. As a result, counties were cutting staff, closing down programs, and eliminating services to absorb the increasing cost of out-of-home placements.

• North Carolina's waiver proposal cited a 200 percent increase in need for foster care placement over a ten year period and a steady increase in the length of out-of-home placements as factors contributing to its interest in a flexible funding waiver. Through the waiver, North Carolina hoped to shift expenditures away from foster care maintenance towards prevention, reunification, adoption, and aftercare services.

• Indiana's waiver proposal noted the escalating cost of child welfare services, combined with decreasing statewide property tax levies, as reasons for pursuing a flexible funding waiver.

Increasing Complexity of the Risk Profiles and Services Needs of Children and Families

As costs for out-of-home placements have risen, States have also seen an increase in the severity and complexity of social, economic, and developmental challenges faced by children and families. Flexible funding waivers offer States an opportunity to provide an enhanced array of services to children and caregivers with heightened risk profiles and needs. In its waiver proposal, Indiana highlighted the growth in the number of children and families with multiple diagnoses and presenting problems as one motivation for pursuing a IV-E waiver. In particular, Indiana sought to increase the service options available to children returning home from out-of-state facilities. Ohio noted in its proposal that out-of-home care was the only child protection resource available in many counties under its existing system, prompting it to seek an expansion of the array of child welfare service options accessible to children and families.

Limitations on the Use of Title IV-E Funds

States have long noted the paradox presented by Federal child welfare funding streams. While title IV-E is an entitlement program that may be used to pay a portion of the foster care maintenance costs of all eligible children (as well as related worker training and administrative expenses), it cannot be used to provide services to either prevent placement or to hasten a child's return home. Although title IV-B funds may be used to provide, among other things, a range of preventive and reunification services to all children involved in the child welfare system, the capped funding levels that have been authorized by Congress are not sufficient to fully address child and family needs. Under these circumstances, child welfare agencies throughout the country have been faced with balancing the use of the limited Federal funds available for preventive and reunification services with the open-ended funds available for placement.

As a result, child welfare officials have voiced concern that the current Federal child welfare funding system encourages foster care placements while discouraging States from fully developing services that would facilitate maintaining children in their own homes. The limitations imposed on the use of title IV-E funds have served as an impetus for the development of flexible funding waiver demonstrations. For example, North Carolina, Ohio, and Oregon all cited restrictions imposed by traditional funding "silos" on providing services that are responsive to the individual needs of children and caregivers as a motivation for pursuing a flexible funding waiver. In its waiver proposal, Ohio noted that it had traditionally provided child welfare services based on the availability of money through specific funding streams rather than on identified child and family needs.

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Key Characteristics of Flexible Funding Demonstration Projects

Each State's flexible funding demonstration attempted to establish a new array of services to prevent placement or facilitate permanency. They expected that the costs of these services would be offset by subsequent savings in foster care expenditures. Although all States with flexible funding waivers sought to reduce the number of children entering out-of-home placement, facilitate more timely exits from placement, and decrease the number of children in costly placement settings, each State adopted a somewhat different approach to controlling expenses until future savings were realized:

• Indiana's demonstration focused on building local capacity to provide community-based services and home-based placement alternatives to restrictive institutional placements. The State implemented its demonstration statewide, allocating a percentage of "flexible funding slots" to each participating county that could be used to provide services for a portion of its foster care population. Counties could choose to use fewer than their allotted number of slots. Indiana set aside 4,000 flexible funding slots for its demonstration, potentially covering 40 percent of its annual foster care caseload of approximately 10,000 children.³ A sum of $9,000 was assigned to each slot to provide any type of service (including foster care) that would facilitate permanency. Services most frequently paid for with IV-E funds have included child and family counseling, parenting and homemaker education, job-related services, and legal assistance. The State mandated the use of Inter-agency Agreements at the county level as the specific mechanism for coordinating the use of flexible funds. Each participating county was required to include the local juvenile court, the local child welfare agency, a local mental health service agency, the school district, and the State itself as parties to the Inter-agency agreement. In the Agreement, the parties established the formal framework for coordinating services among the participating agencies and the eligibility criteria for receipt of waiver services.

• In North Carolina, 19 counties received title IV-E funds through the State that could be used to provide a flexible array of services to meet the needs of children and families in the child welfare system. Eligible children included those at imminent risk of placement or already in placement. Each county was allowed to develop its own initiative contingent on State approval. Counties differed both in the number and types of initiatives they developed, with 16 counties using flexible funds for new contracts with outside service providers, while nine counties used the funds to expand or implement new in-house services. Services commonly offered either in-house or through contracted providers included family support, post-permanency supports, substance abuse treatment, mental health treatment, family reunification services, and legal assistance. In addition, counties used flexible funds for discretionary spending on a case-by-case basis, and most counties used flexible funds to support organizational changes within local child welfare agencies or to support court reform activities. Although not limited by a specific cap on the amount of flexible funds they could spend, counties were expected to remain cost neutral by not spending more title IV-E dollars than they would have spent without the waiver demonstration.

• In Ohio's waiver demonstration, 14 counties experimented with a diverse array of managed care strategies to improve child welfare outcomes while controlling costs. The State provided participating counties with a capped amount of IV-E funds; each county then developed its own strategy for managing expenditures within this allotment. Strategies employed by counties have included establishing capitated or case rate contracts with private providers; developing utilization review strategies, such as pre-placement and periodic review processes; increasing incentives to enhance foster care provider networks; and establishing quality assurance procedures.

• Local child welfare agencies in Oregon (referred to as "branches") developed plans to use flexible funds in three service categories: (1) "innovative services," such as enhanced visitation, in-home parenting, and early childhood assessments; (2) expansion of existing services, including Family Decision Meetings (FDM), Family Mediation, and Family Resource Worker programs; and (3) emergency one-time payments to prevent foster care placement (e.g., rent deposits, groceries, heating bills). As the demonstration progressed, the State focused its evaluation of the second service category - expansion of existing services - on FDM since most branches chose to use waiver dollars to enhance FDM services. During the initial years of the waiver, the demonstration operated concurrently with the State's own flexible funding initiative known as System of Care (SOC), a needs-based approach to working with children and families that focused on family strengths and utilized extended family and community networks to expedite permanency and minimize out-of-home placements. The IV-E waiver provided the State with an additional source of flexible funds to expand placement prevention and permanency services begun through the SOC initiative.

Table 1 summarizes the target populations, eligibility criteria, and services offered through the four State flexible funding demonstrations:

Table 1
Program Features and Eligibility Criteria of Flexible Funding Waiver Demonstrations

State	Services and Core Program Features	Target Population	Jurisdiction
Indiana	4,000 funding slots set aside for counties. Slots allocated using a formula based on child welfare and poverty data. $9,000 allocation per slot was used flexibly for children and family services. Counties bore financial risk for costs exceeding $9,000 per slot. Common services included child and family counseling, parenting and homemaker education, employment services, and legal assistance. Interagency planning group in each county developed plans for new or innovative services to meet the needs of children and families.	Children statewide: (1) in placement or at risk of placement; or (2) involved in substantiated reports of abuse or neglect; or (3) adjudicated delinquent; or (4) otherwise identified as at risk of abuse, neglect, or delinquency.	Implemented statewide in 90 of 92 Indiana counties.
North Carolina	Flexible funds used for county-based initiatives contingent upon State approval. Funding used by counties for both contracted and in-house services. Common services included: (1) family support; (2) assessment; (3) adoption/post-adoption services; (4) substance abuse treatment; (5) mental health services; (6) family reunification services; and (7) legal services for TRP and adoption. Counties also used flexible funds for discretionary spending on a case-by-case basis and to promote organizational changes and court reform activities. State established local trust accounts for experimental counties containing unexpended State funds budgeted for care of non-IV-E eligible children. Counties could access trust accounts if they achieved cost neutrality and had a reinvestment plan approved by the State.	Children in experimental counties at imminent risk of placement or already in placement.	Implemented in 19 of 100 North Carolina counties.
Ohio	Counties received a capped allocation based on historical and projected numbers of days in out-of-home care, costs of care, and percentage of IV-E eligible children. Counties negotiated financial and risk-sharing agreements with private providers. Managed care strategies included: (1) establishment of capitated or case rate contracts with private providers; (2) expanded array of services; (3) improved case management and coordination; (4) utilization review mechanisms; (4) new quality assurance systems.	Children in experimental counties at risk of or in out-of-home placement.	Implemented in 14 of 88 Ohio counties.
Oregon	Encouraged local collaborations among community stakeholders to promote innovative child welfare practices. Flexible funds used for: (1) innovative services (e.g., enhanced visitation, facilitator services, in-home parenting services, and early childhood assessment); (2) Family Decision Meetings (FDM); and (3) one-time emergency payments to prevent foster care placement (e.g., housing deposits, heating bills, groceries).	Children in or at risk of out-of-home placement.	All but one county could participate in the demonstration.

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In addition to their unique approaches to controlling costs and providing services, a review of States with flexible funding waivers reveals differences along several other dimensions:

Local Control and Financial Risk Sharing

States have varied widely in the latitude they have given to local child welfare entities in making decisions about the flexible use of title IV-E funds. For example, local child welfare agencies in all four demonstrations needed State approval before proceeding with their flexible funding service plans, although some States were less directive in terms of the scope and nature of services that could be provided through the waiver. As a corollary to the degree of control afforded to local child welfare agencies, the demonstrations have differed in the level of financial risk shared between State and local government entities. Generally, States that assumed more financial risk have placed greater restrictions on local child welfare agencies in their use of flexible IV-E funds. The following summaries illustrate the diverse strategies adopted by States in balancing the issues of local control and financial risk:

• In Indiana, the State exercised substantial control over the front-end planning process for its waiver demonstration. Once the State approved its Inter-agency Agreement, each county had considerable control over the implementation of the waiver through an Interagency Planning Group and community-based service teams comprised of parents, mental health care providers, and child welfare staff. While exercising wide latitude over the day-to-day operations of their demonstrations, counties assumed all financial risks for expenditures exceeding the capped per slot allocation of $9,000.

• Ohio granted counties significant local authority to design managed care strategies that would improve child welfare outcomes while controlling costs. In return, each county risked liability for the overage in the cost for services and foster care maintenance that exceeded its lump sum IV-E allotment.

• North Carolina's waiver gave counties wide latitude to negotiate contracted services with outside providers, enhance existing in-house services, build collaborative relationships with outside organizations, initiate organizational changes, and work with local courts to change legal procedures regarding out-of-home placement. North Carolina assumed more financial risk at the State level than did Indiana or Ohio, with the State covering half of the difference between counties' actual title IV-E expenditures for licensed foster care and the amount necessary to remain cost-neutral.

• Among the States, Oregon placed the most restrictions on the local use of IV-E funds but bore all financial risks associated with the flexible funding waiver. Local child welfare branches could only use IV-E funds for a limited range of services (See Table 1 on page 6). However, if a branch spent less of its flexible funds than budgeted, the difference was "banked" and available for future waiver-funded services. If a branch exceeded its foster care budget, the State covered the entire difference through other savings realized through the demonstration. To mitigate its financial risks, the State could curtail, discontinue, or disapprove the innovative service plans of branches that failed to maintain cost neutrality.

Flexible Use of Funds

Flexible funding projects are not distinguished by a specific service, intervention, or activity. Counties or other local government bodies have flexibility to determine the scope, intensity, and array of services offered to children and families. Final evaluation reports from the four flexible funding demonstrations reveal utilization of diverse strategies to improve safety, well-being, and permanency outcomes for children. Table 2 summarizes services and activities most commonly used by counties or local child welfare agencies in participating States. Because States delegated flexibility to local counties or child welfare agencies in choosing services, not all counties in a given State implemented all of the services listed in the table. Services and activities provided in most or all States included family-centered child welfare practice models (e.g., Family Decision Meetings and Family Group Conferencing); family preservation services; mental health and substance abuse treatment services; family reunification services; payments for legal services and fees; and discretionary spending on a case-by-case basis for basic family needs such as rent, food, utilities, and transportation. Organizational activities implemented in most States have included interagency collaboratives, enhanced worker training, and reorganization of child welfare teams or work structures.

Table 2
Summary of Major Services and Activities Implemented by Local Child Welfare Agencies in States With Flexible Funding Waivers

Service or Activity	State
	Indiana	North Carolina	Ohio	Oregon
Family-centered child welfare models		X	X	X
Family preservation services/in-home parenting services (e.g., parent training, monitoring, and coaching)	X		X	X
Mental health/counseling services	X	X	X
Child care/respite care	X		X
Discretionary spending for basic family needs (e.g., payments for rent, food, utilities, car repairs, housing specialists, etc.)	X	X	X	X
Medical/dental services	X		X
Special education services	X
Legal services or fees	X	X		X
Child and family assessments		X	X	X
Substance abuse treatment services	X	X	X	X
Managed care strategies (e.g., utilization review, quality assurance mechanisms)			X
Family reunification/enhanced visitation services	X	X	X	X
Improved screening/intake procedures			X
Interagency collaboration (e.g., with mental health service organizations, juvenile courts, etc.	X	X	X	X
Adoption/post-placement services		X	X
Organizational changes (e.g., worker training, restructuring of child welfare work teams, etc.)		X	X	X

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Capped IV-E Allocations

In exchange for greater flexibility and control over the provision of child and family services, localities in two States - Ohio and Oregon - agreed to fixed allotments of title IV-E funds. Ohio, for example, based each county's lump sum allocation on its historical foster care expenditures, adjusted each year based on changes in foster care utilization and unit costs for a group of control counties not participating in the waiver. In contrast, Indiana capped allocations to counties on a per-child basis by creating 4,000 waiver "slots" per year for allocation among its annual foster care population of approximately 10,000 children.⁴ Indiana then allotted these slots to counties according to their population size and poverty rates, with each county having discretion in determining which children to place in the slots. In North Carolina, the flexible funding waiver enabled participating counties to use a portion of resources formerly restricted to foster care maintenance to underwrite prevention, reunification, and aftercare services. North Carolina differed from other States in that it placed no set limits on the amount of title IV-E funds that counties could spend, although it expected counties to maintain cost neutrality by offsetting new title IV-E expenditures with reductions in foster care costs.

¹Aid to Families with Dependent Children, the predecessor to the current Federal Temporary Assistance to Needy Families (TANF) program.Back

²In 2004 and 2005, three additional States - Arizona, Minnesota and Wisconsin - received approval for, but have not yet implemented, their child welfare waiver demonstrations.Back

³U.S. Department of Health and Human Services (2004). Child welfare outcomes 2001: Annual report. Washington, DC: Author.Back

⁴U.S. Department of Health and Human Services (2004). Child welfare outcomes 2001: Annual report. Washington, DC: Author.Back

 

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