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Chapter Four: Subsidy Policies and Their Implementation
Previous chapters described the tremendous growth in subsidy spending and numbers of children served between 1997 and 2002. In the beginning of this period, administrators in states and communities where growth was particularly rapid faced strong pressures to increase the level and amount of services to families as quickly as possible. In the winter and spring of 2002 and 2003, when the last round of interviews occurred with key informants at the state and community levels, the picture had changed dramatically. An economic downturn and the threat of a loss of state funds confronted state administrators with a new challenge—how to maintain their child care subsidy program in the face of reduced resources.
This chapter provides information on state policies in the study states related directly to families’ access to services in the winter/spring of 2002/3, and, in some cases, how they changed from 1999. The chapter describes states’ eligibility requirements, the existence of waiting lists for subsidies, policies related to parents’ co-payments, provider reimbursement rates, and regulatory requirements for providers. The chapter also briefly describes the ways in which subsidy eligibility, certification, and payment systems were implemented in the states and counties in the study.
Summary of Findings
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In 2003, the income eligibility ceiling for child care subsidies for non-TANF families ranged from 37% of State Median Income (SMI) in Indiana to 77% SMI in New Mexico. In three of the 17 states, eligibility ceilings were relatively unchanged since 1999. In five of the states, eligibility ceilings went up as a percent of SMI. In the remaining 9nine states, eligibility ceilings were lower in 2002/3 than they were in 1999, and in some cases, substantially lower. In addition to income requirements, eight of the 17 states required non-TANF families to work a minimum number of hours to be eligible. Requirements ranged from 15 to 40 hours per week.
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While 14 of the 17 states in the study maintained waiting lists for subsidies, virtually all families receiving TANF cash assistance or transitioning from TANF that requested subsidies continued to receive priority for services. All of the states showed a continued commitment to serve families who were on TANF or transitioning from TANF. One state did report that about 250 families in its Work First program went unserved in 2002. For non-TANF families, the size of the waiting lists ranged from approximately 3,700 children in Virginia to 40,000 children in Texas.
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In nine of the 17 states, subsidies were delivered through a statewide system, in 7 states through a county-based system. One state, California, delivered some of its subsidy dollars through the State Department of Education, and the remainder, directed toward families on TANF, through county social services offices. While all states delivered subsidies through vouchers, four of the states in the study also delivered one-half to one-fifth of their subsidies through contracts with providers.
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Ten of the 25 study counties used private child care management agencies exclusively to deliver subsidies, while 12 of the counties used government agencies exclusively, usually TANF offices. The remaining three counties used both government agencies and private voucher management agencies for families, depending on their TANF status. While a growing number of the agencies allowed families to mail applications for subsidies, non-TANF families had to apply for subsidies in person in 17 of the 25 study counties.
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In all of the states in the study, the standard length of certification for subsidies for non-TANF families was either six or 12 months. In all of the states, copayment levels were adjusted at recertification and, in about half, agency staff asked parents to pay any co-payment debt accrued in the interval since certification.1 In eight states, no action was taken to recoup money owed because parents should have been paying a higher co-payment in the interval since their last certification.
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Co-payment rules varied greatly for families at 33% of SMI as well as for families at 50% of SMI. For instance, in 2002, in eight states, families at 33% of SMI either had no co-payment or were required to pay less than 5 percent of their weekly income. In three states, the required amount represented more than 10 percent of income.
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Although families had legal access to virtually all types of child care, the extent of subsidy and regulatory requirements imposed on legal providers differed by state and community. Some of the most restrictive requirements are those for in-home, non-relative child care. As a result, in half of the states in the study, less than 1 percent of subsidized care occurred in the child’s home. Requirements for small family child care homes, relative caregivers, and in-home care (where it is allowed) varied in stringency. Requirements for center-based care also varied, and those states that impose less stringent regulations also tended to purchase higher proportions of center-based care. The greatest variation in regulation was for small family child care homes, which are regulated in some but not all of the states.2
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In 2002/3, only five of the states in the study had recently made changes in reimbursement rates. In 2001, nine states had made increases. Illinois and Louisiana had last raised their reimbursement rates in 2000 or earlier. All but two of the states used a tiered reimbursement system to provide incentives to providers to offer higher-quality care or care that was relatively scarce.
Eligibility for Subsidies: Policies for TANF and Non-TANF Families
The Child Care and Development Fund allows states to use CCDF resources to assist families in paying for child care if their incomes fall below 85% of the state median income (SMI) and if they need child care to support employment and/or education and training. Most states, including the states in this study, take advantage of the flexibility allowed under the law and set their eligibility limits below the Federal maximum. Some also have eligibility requirements related to minimum hours of employment as well as to the types of education, job search, and other job preparation activities that make families eligible to receive subsidies. Families receiving or transitioning from cash assistance and in approved education or job preparation activities are no longer entitled to subsidies as they were under previous legislation, although the CCDF requires them to be a high priority.
Setting eligibility limits is one way in which states and communities ration their limited subsidy resources. Income eligibility ceilings and other requirements are the upper bound of eligibility; states are not required to serve all those eligible for subsidies. If more families apply than can be served with available funding, states may establish priorities for service among the eligible population.
TANF Families Requesting Subsidies
During the study period, all of the states in the study made and maintained a commitment to serve all families on TANF cash assistance who applied for subsidies to support approved employment or job preparation activities. Whether or not the states had a formal program to provide child care subsidies for employed families transitioning from cash assistance, most states made employed families leaving TANF a high priority category among eligible families requesting subsidies. States also had a policy to continue providing subsidies to those who had received them while on TANF, and who remained income-eligible for subsidies when their TANF status changed. It appears that, with the exception of North Carolina, all of the study states continued to serve these families, even where waiting lists began or grew between 1999 and 2002.3 In North Carolina, when the size of the waiting list peaked at 24,015 children, 246 were from families in the state’s Work First program.
Income Eligibility Ceilings for Non-TANF Families
There was much greater variation in eligibility policies and practices for non-TANF families who were not receiving TANF cash assistance (i.e., “non-TANF” families). Exhibit 4-1 shows state income eligibility limits, as a proportion of state median income (SMI), for Fiscal Years 1999 and FY 2003. In 2003, the subsidy eligibility ceiling, expressed as the percentage of state median income, ranged from 37% of SMI in Indiana to 77% in New Mexico.4 (See Exhibit 4-1.)
What happened to state eligibility ceilings between 1999 and 2003? Again, as shown in Exhibit 4-2, the picture is mixed. Sometimes a state did not change its eligibility ceiling, but changes in the state’s median income resulted in an increase or decrease in eligibility limits as a percentage of SMI; in many cases these changes were modest. In California, Ohio, and Texas, eligibility ceilings changed less than one percentage point of SMI. In five states, between 1999 and 2002/3, eligibility ceilings went up as a percentage of SMI; in four of those five states, the increase was between three and eight percent. New Jersey increased its eligibility limit substantially, from a ceiling of 48% of SMI in 1999 to 57% of SMI in 2003. In the remaining nine states, eligibility ceilings, as a percentage of SMI went down, and in some cases substantially. Illinois, Indiana, Louisiana, and Michigan had ceilings that went down 20 percent or more between 1999 and 2003. (For more information, see Appendix Table 4-A.)
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Requirements Related To Hours of Employment
In addition to imposing income eligibility requirements, some states also set requirements for the minimum hours parents must work to be eligible for subsidies. Eight of the 17 states in the study required that employed parents work a minimum number of hours per week in order to receive subsidies. As Exhibit 4-3 shows, the minimum weekly hours of employment required for non-TANF families, in those states with such requirements, ranged from eight hours of work per week in North Carolina to 40 hours per week in Tennessee. These “hours of work” requirements were sometimes different for families transitioning from TANF than for non-TANF families. For instance, although non-TANF families were required to work 30 hours in New Jersey and 40 hours in Tennessee, TANF families needed only 20 hours of work to be eligible. The study did not collect information about how states with minimum hour requirements dealt with the weekly variation in hours of work that frequently occurs in low-wage jobs.
| State | Weekly Hours of Employment Requirement for Non-TANF Families | |
|---|---|---|
| California | - | no requirement |
| Illinois | - | no requirement |
| Indiana | - | no requirement |
| Michigan | - | no requirement |
| New Mexico | - | no requirement |
| New York | - | no requirement |
| Ohio | - | no requirement |
| Texas3 | - | no requirement |
| Virginia | - | no requirement |
| North Carolina | - | 8 |
| Alabama | - | 15 |
| Louisiana1 | - | 20 |
| Massachusetts | - | 20 |
| Minnesota2 | - | 20 |
| Washington | - | 20 |
| New Jersey | - | 30 |
| Tennessee | - | 40 |
| 1 LA: 20 hours of employment are required for a single parent with a child under the age of 6; 30 hours of employment are required for a single parent with a child age 6 years or older. 2 MN: Families not on TANF must work a minimum of 20 hours per week, of which 10 must be paid employment. 3 TX: Counties may make decisions about required hours of employment. |
Waiting Lists for Subsidies
In 1999 and, again in 2001, 12 of the 17 states either had waiting lists for subsidies or turned some eligible families away. In 2003, 13 states did not serve all eligible applicants. In some of these states, all eligible applicants in the study county were served but families were turned away elsewhere in the state. Illinois, Louisiana, Ohio, and Washington served all eligible families in the winter/spring of 2002/03 (Exhibit 4-4).5 In the other 13 states, the size of the reported waiting list varied from approximately 3,700 children in Virginia to approximately 40,000 in Texas. Tennessee reported that it was only serving families who were in TANF or transitioning from TANF; as of January 2003, all non-TANF families were placed on the state’s waiting list, which included 22,500 children. And while there was no waiting list in New Mexico for families below 100 percent of the Federal poverty level, the state placed families between 100 percent and 200 percent of poverty on a list for “future contact” should funds become available.
| State | YES All Eligible Applicants Received Subsidies |
NO Some Eligible Applicants Were Turned Away or Put on Waiting Lists |
|---|---|---|
| Alabama | X | |
| California | X | |
| Illinois | X | |
| Indiana | X | |
| Louisiana | X | |
| Massachussetts | X | |
| Michigan | X | |
| Minnesota | X | |
| New Jersey | X | |
| New Mexico* | X | |
| New York | X | |
| North Carolina | X | |
| Ohio | X | |
| Tenessee | X | |
| Texas | X | |
| Virginia | X | |
| Washington | X | |
| STATE TOTAL | 4 states | 13 states |
| * New Mexico has no waiting list for families below 100% of the Federal poverty level (FDL). However, New Mexico has set its income eligibility at 200% of FPL. As of the fall of 2001, the state maintains a list of families with incomes between 100% and 200% of FPL for future contact should funds become available. |
Accessing the Child Care Subsidy System
In the 13 states in the study, where waiting lists exist, clearly the major factor that limits subsidy use is the lack of funding to serve all eligible families who apply. Other factors that may affect access to and continued use of child care subsidies include how “user-friendly” the system is, both for TANF and non-TANF families. At first glance, the most “user-friendly” approach would differ for TANF and non-TANF families. For non-TANF families, it would be a system where applications were available in many locations and then sent to a local office by mail, fax, or electronically. For TANF families, a user-friendly system would enable families to apply for and maintain subsidy use through the office they must use to apply for and maintain their cash assistance and other benefits, with as few additional forms to fill out and steps to undergo as possible.
States and counties must balance the degree to which systems are user-friendly with the extent to which they are cost-effective, reduce error, and limit fraud and abuse. For instance, the state may believe that it is more efficient, and likely to be more accurate, when state eligibility workers fill in the application forms and verify eligibility face-to-face, rather than relying on forms that are mailed. Therefore, it may require parents to make an appointment with an eligibility worker rather than mail in an application.
For this study, we sought three types of related information to assess the balance between “user friendliness” and efficiency and accountability: (1) whether all eligible families—both TANF and non-TANF—apply to one organization, or whether the application process is split according to TANF status; (2) the type of local organizations to which parents apply; and, (3) the ways in which parents may apply, reapply, and the length of their certification period. After a general description of the subsidy delivery system, the chapter will describe how states and communities have addressed these general questions of implementation.
Subsidy Delivery Systems
Child care subsidies are administered within the context of systems that exist to administer all social services. One way of categorizing states is whether the state has a statewide or county system to deliver social services. As Exhibit 4-5 shows, in nine of the states in the study, all decision-making rests with the state agency and counties have little or no latitude in either interpreting policies or shaping administrative practices. (The one exception is Washington; although it is a statewide system, local offices have flexibility in designing and managing some administrative processes.) In the seven states where the subsidy system is county-based, counties are granted at least some decision-making authority. In many of them, the county is responsible for some decisions about some administrative practices, such as staffing patterns and responsibilities, application and reapplication procedures, payment approval procedures, and record systems.
California has a mixed system. For non-TANF families, the Department of Education has a state-delivered system of subsidies, and the Department of Social Services administers child care subsidies for TANF families through its county system. The California subsidy system is complex, and, for families moving through and out of the welfare system, has three stages.6 Stage 1, which is managed by the state Department of Social Services and implemented by the local county offices, begins with a family’s entry into the CALWORKS program (the state’s TANF program), and typically lasts for a maximum of six months. This period can be extended if it is determined that the recipient’s situation is too unstable for her to be moved to the next stage, or if no funds are available in Stage 2. Stages 2 and 3 are administered by the state Department of Education through Alternative Payment programs, often by local Child Care Resource and Referral agencies, which have contracts directly with the state. Stage 2 begins after 6 months of participation in the Stage 1 subsidy program, or longer, if a recipient’s situation is unstable, or when the family is moving off cash assistance. Families receive Stage 1 or Stage 2 child care for up to 24 months after leaving cash aid, as long as they remain otherwise eligible. After this 24-month period, they transition to Stage 3. Stage 3 is administered in the same way that subsidy programs for low-income working families are administered. In addition, a number of centers and family child care networks receive contracts for services; eligible families access these programs in various ways, depending upon the county.
In some states with county systems, such as Indiana and New York, the state sets subsidy policy and counties control interpretation and administrative practices. In two states with county-based systems, Texas and Virginia, a good deal of authority for developing policies as well as their interpretation and administration rests or can rest at the county level. In the other states, some administrative decisions, such as whether or not to privatize the delivery of services, rest with the counties.
| Statewide System | County-Based System | Mixed System |
|---|---|---|
| Alabama | Indiana | California |
| Illinois | Minnesota | |
| Louisiana | New York | |
| Massachusetts | North Carolina | |
| Michigan | Ohio | |
| New Jersey | Texas | |
| New Mexico | Virginia | |
| Tennessee | ||
| Washington | ||
| 9 states | 7 states | 1 state |
Subsidy Vouchers and Contracts
As required by law, in all of these states, families have access to child care subsidies in the form of vouchers, which allow parents to use the subsidies for all legal forms of child care, provided that all of states’ certification requirements are met. (Certification requirements are described later in this chapter.) In addition to these voucher systems for child care subsidies, five of the study states (California, Illinois, Massachusetts, New Jersey, and New York) maintain a separate system of contracted care, in which the state, or an individual county within the state, enters into an agreement with individual providers for a specified number of subsidized slots, and pays for those slots if they are filled with eligible children. (By and large, providers with child care slots that are not reserved by the contract may also accept voucher payments for the unreserved slots.) In the contracted system, the parent usually applies for the child care arrangement through the center or family child care network that holds the contract. In the states in our study where they are found, contracted systems represent a significant proportion of subsidized care, with the exception of Illinois. Contracts account for approximately half the subsidized care in California, one-third in Massachusetts and New Jersey, and less than one-fifth in Illinois. Some, but not all, counties use child care contracts in New York; information on the overall share of subsidies that were delivered through contracts is unavailable.
Place of Application
The decision about whether to use government agencies or private organizations to provide subsidy services entails a set of tradeoffs. For example, most of the counties that use government agencies use the TANF agency to determine eligibility for subsidies. Delivering subsidies through a TANF office can create a tight link between TANF receipt and child care assistance, which can help ensure that families that receive TANF learn about and have ready access to child care subsidies. It may also result in some administrative economies of scale, since child care delivery is co-administered with TANF and other public benefit programs.
Exhibit 4-6 provides information about the place of application in the 25 study counties. The 10 counties that use private child care management agencies (CCMAs) to provide subsidies for all families offer examples of the potential advantages and disadvantages of privatizing. For example, those private agencies usually specialize in child care services and can provide expertise and experience in helping families choose providers. Moreover, the private agencies are much less likely to have any stigma attached to them. On the other hand, the use of private agencies exclusively may pose an additional burden for TANF families who have to travel to another location, in addition to the TANF office where they apply for cash assistance, to apply for subsidies and choose a provider.
Eligibility for child care subsidies for many, if not all, TANF families must be determined by the TANF agency, whether or not the application process is completed by a private child care management system. This is because eligibility for child care for TANF recipients is contingent upon a parent’s compliance with employment and job preparation requirements of the TANF cash-assistance program. Some of the counties in the study that use private child care management agencies, such as Union, New Jersey, and Mecklenberg, North Carolina, have at times eased the additional burden for TANF families by co-locating a CCMA worker in the TANF office. Other counties, such as Cook County, Illinois, have improved computer systems so that local CCMAs have access to the relevant state TANF administrative information and can confirm that a TANF family is eligible to receive subsidies. In some of the other communities that use CCMAs, parents must bring documentation showing authorization for subsidy use to the CCMA as part of the application process.
Fifteen counties in the study required at least some families to apply for subsidies to a government agency. In most cases, the application was submitted to the state or county agency that administered TANF, although the application did not necessarily occur at the TANF office. For example, in New Mexico, parents who seek child care subsidies call one of four regional child care subsidy offices, which are part of the Department of Human Services, the agency responsible for TANF, Medicaid, and Food Stamps, among other services.
| State | County | Do All Families Apply To the Same Agency? | Families Apply to Private CCMA | Families Apply to TANF/Human Services Agency |
|---|---|---|---|---|
| Alabama | Mobile | yes | X | |
| California | Los Angeles | yes | X | |
| Orange1 | no | X | X | |
| Riverside2 | no | X | X | |
| Illinois | Cook | yes | X | |
| Indiana | Madison | yes | X | |
| Louisiana | Ouachita | yes | X | |
| Massachusetts | Franklin | yes | X | |
| Michigan | Wayne | yes | X | |
| Minnesota | Hennepin3 | no | X | X |
| Itasca/Koochiching /Pennington | yes | X | ||
| New Jersey | Union | yes | X | |
| New Mexico | Dona Ana4 | yes | X | |
| Luna/Grant/Hidalgo4 | yes | X | ||
| New York | Orange | yes | X | |
| North Carolina | Alamance | yes | X | |
| Johnston | yes | X | ||
| Mecklenburg | yes | X | ||
| Ohio | Hamilton | yes | X | |
| Tennessee | Shelby | yes | X | |
| Hardeman/Fayette/Hay-wood/Lake/Lauderdale | yes | X | ||
| Bedford/Coffee/Marshall | yes | X | ||
| Texas | Harris | yes | X | |
| Virginia | Arlington | yes | X | |
| Washington | King | yes | X |
| 1, 2 Families on TANF apply to the TANF agency while transitioning and non-TANF families apply to a private child care management agency. 3 All TANF and transitioning families apply to the TANF agency. Some non-TANF families apply to a private child care management agency. The remainder apply to the TANF agency. 4 Families apply to one of four of the state's regional child care subsidy offices. |
Application Processes
Stigma associated with the place of application is much less if a parent does not have to apply in person but can apply by telephone, mail, or other means. Application processes can also make it relatively easier or harder to receive subsidies. The ease of application and reapplication may be important factors in families’ decisions to apply for subsidies. Exhibit 4-7 shows that, in 17 of the study counties, non-TANF parents have to apply for subsidy vouchers in person, whether at a TANF agency or at a private child care management agency. In eight counties, the application can be by mail, or by phone, although in some cases it is preferred that parents appear in person to apply.
If the application must be in person, the location of the office, and whether there are multiple locations, becomes important. If the office is not in a central location or cannot be reached by public transportation, it may be difficult for some families to use. In some rural areas, such as Luna County, New Mexico, the regional TANF office can be far away from eligible families. In contrast, in King County local offices are located throughout the Seattle metropolitan area. Some key informants also indicated that non-standard hours, allowing families to apply for child care without taking time from work, were important.
Applying or being recertified as eligible for subsidies by mail means that parents may not need to take time off from work to come to the subsidy agency. In rural areas this process also eliminates the need to travel long distances. It is important, however, that the office be run efficiently. Key informants from some study states, where the private child care management agencies or others process thousands of applications each year, described situations where paperwork could be lost or mislaid. Applying by mail also has disadvantages if the parent fills out some parts of the application incorrectly. The application may need to be sent back and then returned, potentially adding days or weeks to the application process.
| County and State | Application Process for Non-TANF Families |
|---|---|
| Mobile, AL | In person |
| Los Angeles, CA | In person |
| Orange, CA | In person |
| Riverside, CA | In person |
| Cook, IL | In person, by mail, or by phone1 |
| Madison, IN | In person |
| Ouachita, LA | In person, by mail or by phone2 |
| Franklin, MA | In person or by mail |
| Wayne, MI | In person |
| Hennepin, MN | In person, by mail, or by phone3 |
| Itasca/Koochiching/Pennington, MN | In person |
| Dona Ana, NM | In person |
| Luna/Grant/Hidalgo, NM | In person |
| Union, NJ | In person, by mail or by phone3 |
| Orange, NY | In person or by mail |
| Alamance, NC | In person |
| Johnston, NC | In person |
| Mecklenburg, NC | In person |
| Hamilton, OH | In person, by mail or by phone3 |
| Hardeman/Fayette/Haywood Lake/ Lauderdale, TN | In person4 |
| Shelby, TN | In person4 |
| Marshall/Coffee/Bedford, TN | In person4 |
| Harris, TX | In person, by mail or by phone1 |
| Arlington, VA | In person |
| King, WA | In person |
| Number of Counties with in Person Only | 17 |
| 1 Application most often occurs by mail or by phone. 2 Application most often occurs by phone. 3 Application most often occurs by mail. 4 Families may re-apply by mail. |
Length of Certification
Families are certified as eligible for subsidies for a set period of time, after which they must reapply for subsidies and again be deemed eligible for them. This process is often called “redetermination” or “recertification.” (Parents are also obligated to contact the subsidy agency if their employment or education situation changes, if it would change the amount of time allowed for child care services, their co-payment amount, or their eligibility in general.) The longer the period of certification, the more “user-friendly” the subsidy system is for families; however, the longer the period, the higher the likelihood that families who are no longer eligible for subsidies will continue to receive them. In those states with no grace period and waiting lists, the risks of either not complying or having problems with the reapplication may be great: a family may be deemed ineligible, lose their subsidies, and be put on the waiting list. In contrast, relatively shorter periods of certification limit the possibilities of fraud and abuse. Key informants in the states and communities said that parents often do not report changes in income if the changes will increase their co-payment obligation; these changes are picked up at recertification.
Most families who are receiving TANF and in job preparation activities receive subsidy certification for the period of their training or activity assignment. TANF families who are employed, as well as families transitioning from TANF, often receive certification periods that are longer. Exhibit 4-8 shows the standard length of certification for non-TANF families in the 17 study states. In nine of the states, the standard length is six months, and in the seven states, the standard length is one year. (In Texas, the length of the certification period varies by county.) In almost all cases, the certification period often is left to the eligibility workers’ discretion; when families appear to have unstable employment situations, workers may choose to certify for periods that are shorter than the standard length.
| State | Months |
|---|---|
| Alabama | 6 |
| Illinois | 6 |
| Indiana | 6 |
| Louisiana | 6 |
| Massachusetts | 6 |
| Minnesota | 6 |
| New Mexico | 6 |
| Tennessee | 6 |
| Washington | 6 |
| California | 12 |
| Michigan | 12 |
| New Jersey | 12 |
| New York | 12 |
| North Carolina | 12 |
| Ohio | 12 |
| Virginia | 12 |
| Texas | varies by county |
Co-Payment Policies and Practices
In addition to guidelines for eligibility, co-payment amounts are a second major subsidy policy decision. States set the amount that families are required to contribute as part of the payment to the child care provider. In 15 of the 17 states in the study, co-payment levels are set by family income alone and do not vary by the type or cost of child care. In Louisiana and Michigan the price of the child care arrangement is taken into consideration in the co-payment formula.
Co-Payment Amounts
To illustrate differences in co-payment policies, we chose to depict co-payment amounts as a percentage of family income in all of the states at two income levels: 33 percent of State Median Income (SMI) and 50 percent of SMI. Exhibit 4-9 shows the percentage of weekly family income the co-payment represents for families whose incomes are at 33% of SMI in 1999 and 2002/3. The exhibit shows the great variation in copayment levels within the same year as well as, in some cases, between years. In 2002/3, California and Louisiana, non-TANF families had no co-payment obligation. In six other states, co-payments were five percent or less of family income. In contrast, for families at the same income level in Texas, Illinois, and New Jersey, required co-payments represented 10 percent or more of their weekly income.
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How did co-payments or families at 33% of SMI change from 1999 to 2002/3? In 6 of the 17 states, there was less than a 10 percent change in the amount of the co-payment, as a percentage of family income. In Illinois, Minnesota, New Jersey, and North Carolina, co-payments increased. For instance, North Carolina increased its co-payment amount from 9 to 10 percent of family income across the income scale, in conjunction with other efforts to find funds to reduce the size of its waiting list. In Illinois, the co-payment more than doubled, from 5.6 percent to 12.4 percent of family income. In the other seven states, the co-payment amount decreased, sometimes substantially. For instance, in Massachusetts, which required families at 33% of SMI to spend 17.3 percent of their income on child care co-payments in 1999, the percentage went down to 8.5 percent in 2002/3. (See Exhibit 4-10. For more information, see Appendix Table 4-B.)
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Exhibit 4-11 provides 2002/3 co-payment information for non-TANF families whose incomes were at 50% of the SMI. As might be expected, in many states, families at 50% of SMI were required to pay a higher percentage of their income for co-payments than families at 33% of SMI. In Alabama, Illinois, Massachusetts, and Michigan, families at 50% of SMI were not even eligible for subsidies, and were required to cover the full cost of care. In Illinois and Michigan, families at 50% of SMI had been eligible in 1999 but were no longer so. In New Jersey, families at 50% of SMI had not been eligible in 1999 but became so in 2002/3.
| 1999 Co-Payments as a Percentage of Weekly Income | 2002/3 Co-Payments as a Percentage of Weekly Income | |
|---|---|---|
| Alabama | Ineligible | Ineligible |
| Massachusetts | Ineligible | Ineligible |
| New Jersey | Ineligible | 12% |
| California | 0% | 1% |
| Louisiana | 4% | 11% |
| Minnesota | 4% | 5% |
| Michigan | 5% | Ineligible |
| New Mexico | 8% | 8% |
| North Carolina | 9% | 9% |
| Illinois | 10% | Ineligible |
| Indiana | 10% | 8% |
| Tennessee | 10% | 10% |
| Texas | 11% | 11% |
| Ohio | 12% | 10% |
| New York* | 14% | 15% |
| Virginia | 14% | 9% |
| Washington* | 20% | 14% |
Co-Payment Notches and Cliffs
In addition to co-payment amounts at fixed levels, the marginal co-payment rate—the rate of change of the copayment amount from one income level to another— an important factor to consider in examining subsidy policy. When a family’s contribution increases abruptly at a certain level (defined as a “notch”) this may affect parents’ employment choices, use of particular child care arrangements, or use of subsidies altogether.
While this study did not plot the co-payment amounts at all family incomes in the 17 states, it did track the marginal change in the co-payment, as a percentage of weekly SMI, between 33 and 50% of SMI. Exhibit 4-12 shows the co-payment as a percentage of family income at 33 and at 50% of SMI for the 17 states, as well as the marginal rate (i.e., the percentage increase or decrease between the two rates). As with most other policies studied, the results present a mixed picture. In four states, families at 50% SMI were ineligible for subsidies. In New Jersey, families at the higher income level spent a slightly lower percentage of their weekly income on the subsidy co-payment; in North Carolina, Virginia, and Texas, the co-payment was the same percentage of family income. By contrast, for New Yorkers with incomes at 33% of SMI who received child care subsidies, co-payments represented 4 percent of their weekly income; those at 50% of SMI paid 15 percent of their weekly income — a marginal increase of 257 percent.
| Co-Payment as Percent of Income at 33% SMI | Co-Payment as Percent of Income at 50% SMI | Marginal Rate (Percentage Increase/Decrease) | |
|---|---|---|---|
| New Jersey | 13% | 12% | -10% |
| North Carolina | 9% | 9% | 0% |
| Virginia | 9% | 9% | 0% |
| Texas | 11% | 11% | 0% |
| California | 0% | 1% | Not Calculable |
| Ohio | 8% | 10% | 26% |
| Minnesota | 2% | 5% | 117% |
| New Mexico | 5% | 8% | 59% |
| Tennessee | 6% | 10% | 65% |
| Indiana | 3% | 8% | 164% |
| Louisiana | 4% | 11% | 164% |
| Washington | 6% | 14% | 139% |
| New York | 4% | 15% | 257% |
| Michigan | 5% | Ineligible | Not Applicable |
| Alabama | 11% | Ineligible | Not Applicable |
| Illinois | 12% | Ineligible | Not Applicable |
| Massachusetts | 13% | Ineligible | Not Applicable |
Additional Fees for Families
Some states allow providers to charge parents an extra fee in addition to the co-payment. This practice is likely to occur either when there is a difference between the maximum payment rate and the amount charged to non-subsidized parents, or when state payment practices do not cover absences, holidays, or special fees. As Exhibit 4-13 shows, 11 of the states allow providers to charge more than the maximum payments, while six do not permit this practice.
| Additional Charges Allowed | Number of States | States |
|---|---|---|
| Yes | 11 | Alabama, California, Illinois, Indiana, Louisiana, Michigan, Minnesota, New Jersey, New York, Tennessee, Virginia |
| No | 6 | Massachusetts, New Mexico, North Carolina, Ohio, Texas, Washington |
Although the practice was allowed in some places and prohibited in others, virtually no key informants had a clear understanding of the extent to which parents were being asked to pay additional rates or fees. The practice appeared to be a greater issue for families in communities where the state’s maximum payment amount was significantly lower than the true market price for child care. These gaps occurred either in pockets of more expensive child care within a large area with relatively low subsidy rates or because the rates had not been adjusted for some time. In Hennepin County, Minnesota, some parents were required to pay as much as $60 or $70 a month in addition to their co-payment because of the discrepancy between subsidy rates and the true market price for child care. Key informants acknowledged that, even in states where providers could not legally charge more than the state’s payment rate, the practice still occurred.
In most states or localities, the child care provider collected the co-payments. In a few areas, this practice was monitored by the state, and providers had to show that the co-payment was collected each month. In the states in which co-payments were not closely monitored or were collected directly by the subsidy agent, key informants almost uniformly noted that providers were reluctant to report parents’ delinquency in making the co-payments if it meant that the subsidy would be cut off. For this reason, very little information existed on the degree to which parents were or were not making co-payments and to which providers. However, key informants in most communities did not believe that providers experienced much difficulty collecting the co-payments. Typically, it was a greater problem with parents at the higher end of the eligibility scale who had relatively high co-payments.
Co-Payment Changes Between Certification Periods
Between certification periods, parents are required to report changes in family income or earnings that would trigger a change in their co-payment obligation. Key informants in the study states and communities indicated that, despite this obligation, most changes in family income that result in an increased co-payment are picked up only at the recertification period.
States handle situations in which a parent should have paid a higher co-payment between certification periods quite differently. In 2001, nine states reported that no action is taken, but in the other states the parent is required to make up the back co-payments owed, either by paying the provider with an adjusted co-payment amount (i.e., the state reduces its portion of the payment to providers) or by making a payment to the state.7
Payments to Providers
In addition to making decisions about eligibility levels, application processes, and co-payment amounts for parents, state and local policymakers also determine payment rates and payment processes. Again, they must achieve a balance. Their goals are to enable families to have a choice of providers, yet be able to offer assistance to as many eligible children as possible given funding constraints. In addition, state and local policymakers must establish processes to ensure that subsidies are paying for services that are actually being delivered, and that are not administratively cumbersome for either the subsidy agent or the child care provider. The increased flexibility and funding that accompanied the 1996 Federal legislation gave states and communities the opportunity to address these issues. This section describes payment rates, including those for relative and in-home care, co-payment collection practices, and issues surrounding payment systems.
Payment Rates
A major decision for state policymakers involves setting the maximum payment rates for different types of child care programs in the various markets in the state. The Child Care and Development Fund directs that payment rates must allow eligible children access to child care programs equal to that of non-eligible children, and regulations stipulate that states must base their rates on a market survey conducted within two years. Previous Federal child care legislation stipulated that states could receive Federal reimbursement for all child care payments that fell below the 75th percentile of the cost of care according to that survey. Since that time, many states have continued to compare their payment rates for specific forms of care in different communities against the 75th percentile benchmark. For some forms of care, namely in-home and relative care, states and communities have experienced more difficulty in determining the proper reimbursement rate. Each of these issues will be discussed further below.
With respect to payment rates, states and communities in our study fell into three categories: states where the payment rates were last adjusted in 2000 or in prior years; those that adjusted their rates in 2001; and those that had adjusted rates between January 2002 and April 2003. Data for the report was collected in the winter of 2002 and early spring of 2003; some states may have subsequently raised rates. Exhibit 4-14 shows that the majority of the states raised their rates in 2001 but that Illinois and Louisiana had their last rate adjustment in 2000 or before. For some states the rate adjustments drew on market rate surveys that occurred within the previous year, but in other states the adjustment was based on information that was several years old.
| State | Last Payment Increase Occurred 2000 or Prior | Last Payment Increase Occurred 2001 | Last Payment Increase Occurred 1/2002- 4/2003 |
|---|---|---|---|
| Alabama | X | ||
| California | X | ||
| Illinois | X | ||
| Indiana | X | ||
| Louisiana | X | ||
| Massachusetts | X | ||
| Michigan1 | |||
| Minnesota | X | ||
| New Jersey | X | ||
| New Mexico | X | ||
| New York | X | ||
| North Carolina | X | ||
| Ohio | X | ||
| Tennessee | X | ||
| Texas2 | X | ||
| Virginia | X | ||
| Washington | X | ||
| TOTAL | 2 | 9 | 5 |
| 1 No information was available for Michigan.
2 The maximum state rate varies, but the 75th percentile of the 1999 market rate is the benchmark. Local areas may set the payment rate lower than this benchmark if they can demonstrate that subsidized families will have equal access as do non-subsidized families. |
Changes in Rate Amounts Between 1999 and 2003
In addition to when the rates were adjusted, it is important to understand what has happened to the rate in terms of its purchasing power in the states and communities. There is no satisfactory metric to compare purchasing power; states that compute the percentage of the regulated market that charges fees below the state payment rate do so using different base years and different methodologies, limiting the meaning of cross-state comparisons. In this study, we took the weekly maximum rate for full-time, center-based care for three-year-olds, in the study county in each state with the highest rates. We adjusted this rate by a child care labor cost index, which makes the rate worth relatively more in terms of the amount of child care it can purchase in those state markets where child care workers are paid relatively less. We then looked at how the rates changed in these states between the summer of 1999 and the winter/spring of 2002/3.
Exhibit 4-15 shows the great range in rates, even when adjusted by the child care labor cost index. The weekly rate for full-time center care for a three-year-old ranged from approximately $76 in Madison County, Indiana, to over $187 in Arlington County, Virginia. Seven of the 17 states had weekly rates of less than $110; counties in three states — Arlington, Virginia; Orange, New York; and Hennepin, Minnesota — had weekly full-time rates that were above $150 per week for this type of care.
| State | County | 1998/99 Adjusted Rate |
2002/3 Adjusted Rate | Percentage Change |
|---|---|---|---|---|
| Virginia | Arlington | $ 175.91 | $ 187.17 | 6% |
| New York | Orange | $ 114.07 | $ 168.11 | 47% |
| Minnesota | Hennepin | $ 134.90 | $ 152.22 | 13% |
| Massachusetts | Franklin | $ 114.59 | $ 143.75 | 25% |
| Texas | Harris | $ 108.84 | $ 135.00 | 24% |
| North Carolina | Mecklenburg | $ 134.18 | $ 134.56 | 0% |
| California | Orange | $ 109.49 | $ 133.89 | 22% |
| Washington | King | $ 92.73 | $ 127.63 | 38% |
| Tennessee | Shelby | $ 80.32 | $ 119.33 | 49% |
| New Jersey | Union | $ 99.28 | $ 112.79 | 14% |
| Alabama | Mobile | $ 82.59 | $ 108.72 | 32% |
| Louisiana | Ouchita | $ 81.99 | $ 106.58 | 30% |
| Illinois | Cook | $ 106.69 | $ 103.47 | -3% |
| Ohio | Hamilton | $ 108.75 | $ 100.32 | -8% |
| Michigan | Wayne | $ 169.86 | $ 95.65 | -44% |
| New Mexico | Dona Ana | $ 77.63 | $ 81.57 | 5% |
| Indiana | Madison | $ 62.91 | $ 76.52 | 22% |
Exhibit 4-15 also shows how the rates changed between summer 1999 and winter/spring 2002/03, after making the adjustments in child care labor costs. In 11 of the 15 states, the rates increased by 10 percent or more. Counties in nine states experienced an increase of 20 percent or more. Rates were relatively stagnant in Arlington, Virginia; Mecklenburg, North Carolina; Cook, Illinois; and Dona Ana, New Mexico. They decreased slightly in Hamilton County, Ohio and significantly in Wayne County, Michigan. (For more information, see Appendix Table 4-C.)
Recognizing the great degree of variation in local child care markets, the study also compared full-time rates for care in 2000 with the fees the programs charged to fee-paying parents, using CCR&R data. More information about that analysis is provided in the next chapter, which discusses issues related to child care supply.
Differential Reimbursement Rates8
As increasing emphasis is placed on the importance of quality child care, as well as on having some types of regulated care available in the market, some states have moved to support provider efforts to increase the quality of care through differential reimbursement rates. Differential rates are paid to providers as incentive payments to enhance quality, to offer care for non-traditional hours, or to cover the additional costs associated with providing child care to children with special needs. As shown in Exhibit 4-16, as of 2001, the majority of the states in the study used differential rates for at least one of these three purposes. In all but two of the states, for instance, child care providers who serve children with special needs received an increased reimbursement.
| State | Higher Rates for Care Operating Non-Traditional Hours | Higher Rates for Care for Children with Special Needs | Higher Rates for Care Meeting Higher Quality Standards |
|---|---|---|---|
| Alabama | |||
| California | X | X | |
| Illinois | X | X | |
| Indiana | X | X | |
| Louisiana | X | X | |
| Massachusetts | X | X | |
| Michigan | X | X | X |
| Minnesota | X | X | X |
| New Jersey | X | X | |
| New Mexico | X | X | X |
| New York | X | ||
| North Carolina | X | X | |
| Ohio | X | X | |
| Tennessee | X | X | |
| Texas | X | X | |
| Virginia | |||
| Washington | X | X | |
| TOTAL | 8 | 15 | 9 |
The states have used two basic approaches to judge whether child care providers meet higher standards worthy of higher reimbursement: they either rely on national accreditation systems or they develop their own rating system, which may have several tiers. Some of the tiered rating systems are part of the overall regulatory scheme, and provider ratings are made available to all parents to help inform their selection of care. In other cases, they are tied to the subsidy payment system only. Indiana and New Jersey are states that pay higher reimbursements to providers that become voluntarily accredited through a nationally-recognized and approved entity, such as the National Association for the Education of Young Children (NAEYC). New York also provides counties with this option, although only a handful of districts throughout the state use differential rates for accredited programs. New Mexico, North Carolina, Tennessee, each have developed rating scales with three to five tiers, or in some cases, stars, with a higher rate associated with higher tiers in the scale.
The size of the increase or bonus for higher quality also varied greatly among the states that employed these measures. As of 2001, differential rates for higher quality in Indiana and North Carolina were five percent or less. New York State gives counties the option to pay as much as 15 percent more than the rate. In New Mexico, the Aim High rating scale pays higher rates to the top three of the five tiers, which are associated with rate increases of 5 percent, 9 percent and 18 percent, respectively. Tennessee’s “bonuses” for providers at each of its three star ratings range from 5 percent to 20 percent of the rate at the 70th percentile for that particular type of care.9
Subsidy and Regulatory Requirements for Types of Care
One of the major principles of the Child Care and Development Fund is to provide families that receive subsidies a choice of all legally-available forms of child care. These choices include center-based care, family child care, relative care, and in-home care. However, the legislation also allows states and counties, as a condition of receiving subsidy payments, to impose requirements on child care providers who would otherwise be exempt from state regulation, such as church-based child care centers, relatives, in-home providers and, in some places, small family child care homes. (We refer to the requirements with which all providers must comply, regardless of receiving subsidies, as “regulatory requirements.” We refer to those additional requirements with which providers must comply as a condition of receiving subsidies as “subsidy requirements.”) In fact, the legislation requires that children in care paid for by subsidies must be regulated in terms of the prevention and control of infectious diseases (including immunizations), the safety of building and physical premises, and health and safety training. The states are allowed, but not required, to exempt from these requirements care provided by relatives, and care that is provided in the child’s own home. For legally exempt care, including care by relatives, many states require otherwise unregulated caregivers to undergo self-certification or attest to the fact that these requirements have been met. Some states choose to employ more-stringent regulatory or enforcement requirements, such as requiring proof of health and safety training, or conducting home inspections to determine environmental safety.
Therefore, while all states and communities in the study give subsidized families legal access to virtually all types of child care, they differ in the extent and type of subsidy, regulatory, and monitoring requirements imposed on providers. The level of requirements may account for some of the variation in the distribution of the forms of subsidized child care used among the states. Some of the subsidy requirements may limit families’ choice related to in-home child care. Requirements for small family child care homes, including the requirements of both the subsidy and regulatory systems, vary so greatly from state to state as to make comparisons of subsidy requirements and their effects very challenging. States have a wide range of subsidy and other regulatory requirements for these homes, from self-certification and criminal records checks to quite intense training requirements and monitoring.
Requirements for Centers
In most cases, prior to the enactment of CCDF, states established regulations for center-based care that fulfill the Federal health and safety requirements discussed above. In some states, however, a significant proportion of license-exempt center-based care is supported by subsidies. Many of these programs are located in churches and other religious institutions. Other programs may be exempt from regulations because parents are elsewhere on the premises while their children are in the child care arrangement.
Family Child Care Requirements
A basic difference in regulatory requirements among states is in the minimum size of family child care homes subject to the state’s overall regulatory requirements. Exhibit 4-17 depicts this difference. In Alabama, Massachusetts, and Washington, virtually all full-time family child care must be regulated, regardless of whether or not the provider receives subsidies. At the opposite end of the spectrum, Louisiana and Ohio impose no requirements on unsubsidized child care providers, unless they care for seven or more children. A state’s regulatory requirements may range from self-certification to requirements for training, home inspections, and ongoing monitoring. These regulatory requirements are sometimes then overlaid with the state’s subsidy requirements.
| Number of Children | Number of States | States |
|---|---|---|
| 0 | 3 | Alabama, Massachusetts, Washington |
| 2 | 3 | Michigan, New York, North Carolina |
| 3 | 3 | Illinois*, Texas, Virginia |
| 4 | 3 | New Mexico, Tennessee |
| 5 | 2 | Indiana, New Jersey |
| 6 | 1 | Louisiana**, Ohio*** |
| Children from only 1 family (not including provider’s own children) | 2 | California, Minnesota |
| * In Illinois, family child care is license-exempt if the provider cares for three or fewer children (including the caregiver’s own) or the children from one family (not including the providers’ own). ** There are no family child care regulations in Louisiana. Individuals caring for seven or more children must be licensed as a Class A or Class B Child Day Care Center. *** If all children in care are under two years of age, then the maximum number of children in license-exempt family child care is three. |
At a minimum, the Federal CCDF law requires all otherwise unregulated providers who receive subsidies to sign a self-certification that they will comply with minimum health and safety requirements. As noted before, for non-relative family child care, all states must ensure that providers comply with basic standards related to infectious disease prevention, the safety of the premises, and health and safety training for caregivers. At a minimum, states require license-exempt providers to sign a form certifying their compliance with these standards as a condition for receiving subsidies. For this study, we collected additional information on regulation and monitoring that went beyond this basic requirement.
Exhibit 4-18 shows whether or not states had requirements for license-exempt family child care in several areas. When reviewing the exhibit, it is important to remember that the size of the family child care homes that fall within this category varies greatly. There is virtually no license-exempt family child care in Alabama, Massachusetts, and Washington, while such homes can have five or more unrelated children in five other states. It is also important to note that, while we asked if there was a requirement in any of these areas, we did not ask about the scope of the requirement. In one state, license-exempt caregivers must attend a one-time workshop on child development, while in another, more than 20 hours of training per year are required.
| STATE | Child Development Training | Certification in CPR or Health and Safety Training | Home Inspections |
Criminal Records Checks |
|---|---|---|---|---|
| Alabama* | N/A | N/A | N/A | N/A |
| California | no | no | no | yes |
| Illinois | no | no | no | yes |
| Indiana | yes | yes | yes | yes |
| Louisiana | yes | yes | yes | yes |
| Massachusetts* | N/A | N/A | N/A | N/A |
| Michigan | no | yes | yes** | yes |
| Minnesota | no | no | no | yes |
| New Jersey | no | no | yes | no |
| New Mexico | yes | yes | yes | yes |
| New York | no | no | no | no |
| North Carolina | no | yes | yes | yes |
| Ohio | yes | yes | yes | yes |
| Tennessee | no | no | yes | no |
| Texas | yes | no | no | yes |
| Virginia | no | no | yes | yes |
| Washington | N/A | N/A | N/A | N/A |
| TOTAL "YES" | 5 | 6 | 9 | 11 |
| *All family child care operated by a non-relative is regulated by the state. **Inspection required of heating system. |
| STATE | Child Development Training | Certification in CPR or Health and Safety Training | Home Inspections | Criminal Records Checks |
|---|---|---|---|---|
| Alabama* | no | no | no | no |
| California | no | no | no | no |
| Illinois | no | no | no | yes |
| Indiana | no | yes | yes | yes |
| Louisiana | yes | yes | yes | yes |
| Massachusetts* | yes | yes | no | no |
| Michigan | no | no | no | yes |
| Minnesota | no | no | no | yes |
| New Jersey | no | no | yes | no |
| New Mexico | yes | yes | yes | no |
| New York | no | no | no | no |
| North Carolina | no | no | no | yes |
| Ohio | no | no | no | no |
| Tennessee | no | no | yes | no |
| Texas | yes | no | no | no |
| Virginia | no | no | yes | yes |
| Washington | no | no | no | yes |
| TOTAL | 4 | 4 | 6 | 8 |
| *All family child care operated by a non-relative is regulated by the state. |
Given these caveats, Exhibit 4-18 shows wide variation among the states. Of the 14 states with license-exempt family child care, only New York does not have requirements beyond requiring child care providers to attest to their compliance with subsidy requirements. Six states require subsidized, license-exempt family child care homes to meet requirements in three of the four areas; the remaining states in the study have requirements in one or two of these areas. Requirements most often were related to home inspections and criminal or child abuse background checks.
Requirements for Child Care by Relatives
Relative and in-home caregivers must also comply with subsidy regulations in the four areas shown in Exhibit 4-18, but in general they were subjec