Rate Setting Policies: Ensuring Access and Improving Quality

Rate Setting Policies: Ensuring Access and Improving Quality was prepared for the Child Care Bureau, Administration for Children and Families, U.S. Department of Health and Human Services, under contract with the National Child Care Information Center (NCCIC), by Lisa Schock, Publications Manager, and Jane Daugherty, Consultant.

This document is for informational purposes only. No official endorsement of any practice, publication, program, or individual by the U.S. Department of Health and Human Services, the Administration for Children and Families, the Child Care Bureau, or the National Child Care Information Center is intended or is to be inferred.

Introduction

On November 28-29, 2000, the Child Care Bureau, Administration for Children and Families, U.S. Department of Health and Human Services (HHS), convened an Issues Meeting focused on Rate-Setting Policies: Ensuring Access and Improving Quality. Held in Washington, DC, the two-day forum brought together State Child Care Administrators, federal agency staff, and representatives from national organizations, universities, research institutions, child care programs, and resource and referral agencies to examine different approaches to conducting market rate surveys and to learn more about how rate-setting policies impact access to and the quality of child care in communities throughout the United States.

The purpose of the Rate-Setting Policies meeting was to bring together State Child Care Administrators and others for in-depth discussions and sharing of best practices on:

These topics were especially important as states prepared for their 2001 State Plan submissions. (New regulations issued by HHS in July 1998 require that states "conduct local market rate surveys no earlier than two years prior to the effective date of their current CCDF plan.¹)

This documentprovides an overviewof each presentation conducted during the Issues Meeting (brief summaries along with presenter names are also included in this introduction as a reference). Appendices include the Issues Meeting agenda, presenter list, participant list, presenter handout list, and a sample of state surveys.

A forthcoming companion document, Conducting Market Rate Surveys and Establishing Rate Policies², provides a brief overview of the market-based approach and a discussion of the problems and possibilities in conducting market rate surveys and setting rate policies for the administration of the subsidized system.

Proceedings Summaries

Stoney provides an overview of market rate surveys and of child care rate setting activities conducted by states.

The speakers explore such issues as who should conduct the market rate survey as well as exactly who should be surveyed. Several key points emerge during this discussion: one, states should draw samples using the smallest geographic boundaries possible; two, getting a high response rate is crucial; and three, if possible, when conducting a random sample, use a statistician to help draw the sample.

Dr. Lyons discusses design and implementation of survey instruments in order to get optimal results, summarizing the survey’s four main purposes. She also elaborates on types of questions, question formats, and issues related to leading or threatening/sensitive questions.

The speakers share the results of two different types of survey instruments and show how the data collected broadens their understanding of child care markets in their respective states.

This session looks at market rate surveys from the child care provider’s perspective. To get accurate data and a high response rate, the speakers suggest reaching out to the leadership of family child care associations, involving child care center directors in development of the survey, and being aware of appropriate times to call centers and family child care homes for survey input.

Child care providers and state policymakers need to be able to measure the actual cost—not the price—of providing child care. Speakers in this workshop address this need, providing an overview of research underway at the Frank Porter Graham Child Development Center in Chapel Hill, NC, and of a cost quality study being conducted by the Massachusetts Department of Education.

Market rate survey data can help state child care administrators accomplish any number of objectives, from setting rates to expanding access to supporting high-quality care. This session explores how to translate data into payment rates and looks at how specific market rate surveys have led to revised rate setting policies in North Carolina and the District of Columbia.

Speakers address rate adjustments, including special needs rates, tiered reimbursement for high quality, informal care, kith and kin, odd-hours care, and school-age care, explaining why such adjustments are necessary when costs for certain types of care cannot be addressed within the market rate structure.

This session explores how state policies and practices shape what providers receive in terms of reimbursement, discusses the impact on parents of fees and rates, and highlights several states with innovative rate-setting policies.

Introduction: Using Market Rate Surveys to Develop Rate Policies

Stoney provided an overview of market rate surveys and of child care rate setting, addressing the following questions:

Stoney also stressed the importance of understanding the relationship between direct subsidies (grants or contracts to child care programs) and indirect subsidies (vouchers or certificates to help parents pay fees). According to Stoney, raising the reimbursement rate isn’t the only way to make child care affordable. In some cases, raising public rates forces programs to raise private rates and, in the end, can make child care too expensive for moderate- and middle-income families. Stoney encouraged states to explore the feasibility of developing financing strategies that combine portable and direct subsidies in the same program.

The Survey Sample: Which Providers to Survey, How Many and Why?

Shelley Waters Boots stressed the importance of thinking carefully about who should conduct the market rate survey and allocating sufficient resources to get the job done. California surveys about 37 percent of the total population, or about 14,000 providers. The scope of this project, which requires the equivalent of two and a half full-time staff, includes conducting overall survey design, data analysis, and writing the report. In addition, the California Child Care Resource and Referral Network spends about $250,000 to contract with a survey research firm to do data collection (about 30 staff do data collection.) The key issue is making sure that you have staff with the expertise and the credibility to do the job.

Ms. Boots also addressed the issue of thinking carefully about who you survey. For example, what types of care are included? Who is excluded, and why? California excludes child care programs that serve 100 percent subsidized children and that are under contract with the state to serve those children. They exclude these providers because their rate is not set by the market, but rather is negotiated by the state. California also excludes informal, unregulated child care providers and Head Start programs.

Ms. Boots explored the pros and cons of using administrative data to collect information on rates (e.g. using the rate data that child care resource and referral agencies (CCR&Rs) collect as they are building their referral databases). Even though the resource and referral agency does the market rate survey, they do not use administrative data to set rates. Instead, they use the list of providers that CCR&Rs compile in their databases to draw a sample of providers; they then hire a separate survey research firm to conduct telephone interviews with each of these programs. California does not use administrative data from the CCR&Rs because it could not ensure that the rate data was gathered in a consistent, uniform, nonbiased way, that each provider was asked exactly the same questions and that data were entered in exactly the same way. Ms. Boots stressed that the primary goal was to get a representative sample that accurately reflects the prices of child care in a given and defined market.

Dr. Dominguez provided information on the sampling strategy used by the Center for Social Work Research. The Center uses a telephone system called Computer Assisted Telephone Interview (CATI). Telephone operators ask each center or family child care provider to provide the rate for each segment of the population. Mr. Dominguez also explained the importance of understanding sampling error in order to ensure the accuracy of the rates used to set reimbursements.

The Survey Instrument

Deborah Lyons spoke about the purpose, objectives, and design of the survey instrument, summarizing its four main uses. One, the survey instrument is used to translate survey objectives—so you must know precisely why you’re surveying before you design the instrument. Two, the survey instrument is used to ask pertinent questions. Three, the survey instrument is used to record the survey responses—so it’s important to think of the instrument as a recording document. Finally, the instrument is also significant because it guides the data entry.

Dr. Lyons discussed the importance of thinking carefully about how you phrase questions, and of pretesting the instrument with different types of providers before beginning the survey. Information is gathered by telephone, so those individuals conducting the interviews need to be carefully trained to ensure uniformity.

One participant asked how states can be sure that responses to the survey are accurate. Dr. Lyons responded that one way to check reliability is to ask for information you already have and to see if the answer you get matches. For example, she will ask the provider to give her capacity data, hours of operation, and other information that has already been collected in a database. If these two sources don’t match, she goes back and takes another look at all of the answers on the survey form. Shelley Waters Boots commented that one way they address this concern in California is to ask the same question several times, in different ways, and see if the answers they get are consistent. Another way to check the accuracy of data is to review the numbers as a whole during the analysis period. Rates generally cluster within a certain range. Rates that are significantly above or below this range are suspect, and might be excluded from the survey.

Using Market Rate Surveys to Collect Additional Data

Eric Karolak shared the results of a rate survey that included questions on payment procedures. The Ohio legislature asked the Legislative Budget Office to study the child care payment system (in other words, how the subsidy is delivered to providers), and to make recommendations specifically with regard to the feasibility of a prospective payment system. The Lead Agency in Ohio invited the non-partisan legislative research office to include its payment-system related questions in part of the state’s market rate survey. Ohio surveys all licensed providers by mail and conducts a telephone survey of three percent of family child care providers. While both the agencies shared data, each was independently responsible for the development of specific questions for the mail survey of licensed providers. The result was a 62-question, 14-page survey instrument that yielded a response rate of only 51.6 percent.

Providers were asked not only to rate various alternative payment systems and methods, but also to relate their experience with existing payment procedures. Survey results showed 70 percent of invoices/vouchers were processed within 30 days, but 28.4 percent of providers participating in the subsidized child care system had experienced a "cash flow crisis" resulting from delayed or incomplete reimbursement from the county offices that administer the subsidy in Ohio. The budget office also arranged focus groups and elite interviews and learned that, despite testing questions in advance, the survey should have asked "What percentage of your invoices are paid in full in 30, 60, or 90 days?" The budget office learned that while invoices are processed quickly, they’re subjected to a verification process that accounts for authorized hours, eligibility, and other items, which can reduce the invoiced amount and result in what amounts to delayed payment to the provider once all is said and done. In the case of one provider studied in detail, invoices for 123 service-weeks were finally approved as much as a year after service had been provided and the invoices initially submitted and subjected to review. Dr. Karolak observed that the "the rate itself is not the end-all and be-all in terms of the revenue side of the picture for providers," but is affected by payment procedures also.

Linda Mills, who conducted the market rate survey for Vermont, had a very different experience. She found that providers were very willing to respond to a broad array of questions on the child care market—resulting in 78 percent response rate. (It is important to note, however, that the survey conducted by Mills and Pardee included a number of incentives to respond promptly. For example, a reward of $500 was offered to the three CCR&Rs that generated the highest percentage of survey responses. And providers who returned their survey instruments promptly were eligible to participate in a drawing for prizes such as 20 coupons for $50 worth of child care materials and supplies and a free spa weekend.)

In addition to rate data, the Vermont market rate survey gathered information on:

By gathering such a broad array of data, the Vermont Child Care Services Division was able to understand the child care markets in the state in new ways. For example, the survey showed that centers accredited by the National Association for the Education of Young Children (NAEYC) were among the largest centers in the state, were the centers that paid the highest salaries, had more highly educated staff, and charged higher rates. When they looked at rates by county, they learned that market rates varied tremendously from one county to another. In some counties, the local market rate was as much as 34 percent higher than the state rate (Vermont sets a single, statewide rate ceiling), while in others it was up to 9 percent lower than the state rate. In sum, Vermont concluded that doing such a broad survey provided them with well-documented, credible information that can help with making decisions on a variety of child care policies.

Ensuring Accurate Data: The Role of The Provider

Susan Eckelt began by giving the audience a sense of what it is like to be a family child care provider who receives a market rate survey in the mail:

Ms. Eckelt told the group that she had sent out an e-mail to the NAFCC board, which represents family child care providers across the United States, and wasn’t prepared for the overwhelming response she received (despite the fact that it was Thanksgiving and she gave them a one-week turnaround time). By a large margin, the family child care providers reported that they never really understood why their state was conducting a market rate survey or what the information was going to be used for. Family child care providers who did not care for subsidized children reported that they didn’t respond to the survey because they thought it was irrelevant to them. ("What's in it for me? This is not going to make a difference to me in my daily life as a family child care provider.")

Providers in states that used CCR&R agencies to collect the data reported that they were hesitant to participate because they were afraid that the agencies would use this information to give to the parents calling in looking for child care. They therefore did not give accurate data. Others said that the survey was not user-friendly. They didn't understand exactly what the questions were asking or how rates would be converted. Some of the providers admitted that they submitted lower fees than they actually charged, suspecting that the information was going to get back to the IRS.

To get accurate data from the providers, it’s important to reach out to the leadership of family child care associations. Let them review the proposed surveys and the accompanying letters that are going to be sent out with these surveys. Be sensitive to the times when they are able to attend the meetings, and to the fact that they lose money when they leave their programs. Most importantly, try to answer the child care provider when she says, "What is this going to do for me?"

Lynn White also sent an e-mail to her membership asking for input, and also got a large response rate. Most of her members reported that they preferred a mail survey (although they admitted that they often do not respond to mail surveys in a timely fashion), and that the single largest barrier to completing the survey is time. They also stressed the importance of asking to speak with the right person—the director or the financial manager. They suggested calling during nap time, and never calling between 3:30 p.m. and 6 p.m. Ms. White agreed that involving child care center directors in development of the survey was an excellent idea. She also suggested developing tools and training to help providers calculate accurate rates, adapting state payment policies to reflect the way the market operates (for example, pay by enrollment not attendance).

Kerry Moser concurred with many of the comments made by Ms. Eckelt and Ms. White. She stressed the complexity of running a child care center and the difficulty of setting rates that accurately reflect the cost of care:

Cost Studies

Market rate surveys measure the price—not the cost—of child care. Increasingly, child care providers and state policymakers want to be able to measure the actual cost of providing child care. This workshop was intended to address that need.

Jana Fleming provided a brief presentation on research that she is currently conducting on the actual cost of producing child care. She began by stressing the importance of being clear about exactly what expenses—and what revenues—are included in calculating the cost of care. A summary of the expense and revenue information gathered as part of the FPG cost studies is included in this report.

A 40-page financial data form must be completed by each program that participates in the FPG cost study, a task that has proven to be very difficult. In most cases, FPG has had to send a staff person out to the center to explain how to fill out the form. Many of the child care programs that participated in the study did not have all of the necessary financial information needed, so FPG staff had to work with them to create the data, or they have had to use data of questionable validity.

Dr. Fleming noted, however, that FPG is doing a similar study with NAEYC-accredited child care centers in Chicago, and the process is running much more smoothly. The providers there are having an easier time completing the form and working with FPG staff.

The key issue in ensuring broad participation in cost studies is helping programs understand why they should fill out the form. How will it help them? FPG has learned that the process it developed for gathering budget information has helped programs to think critically about how to structure their budgets and maintain cost information. Several program participants, who were reluctant to participate at first, told FPG staff that in the end, the process was very helpful to them. Jana noted that a more effective way to do cost studies might be to develop a financial data collection form, then provide on-going training and technical assistance with programs on records-management and bookkeeping, and then give the programs a year or so to implement the new financial procedures. After a year or 18 months, the research team could go back in and gather uniform data from all the programs, analyze it, and estimate an actual per-child cost.

Dr. Fleming also noted that she is currently working with child care center directors and owners to help streamline the financial instrument and focus on the most critical pieces so that it is easier to complete. Additionally, she is working with a group in Chicago to adapt the form to collect costs in public prekindergarten programs.

Jason Sachs reported on a cost quality study that is currently being conducted by the Massachusetts Department of Education. The study includes five surveys, which focus on center-based child care (e.g. child care and Head Start centers), family child care providers, school-age child care programs, public school prekindergarten programs, and parents. The surveys—which are referred to as Community Profiles—are being conducted by 40 of the Community Partnership Councils (CPCs) in Massachusetts. (Participation has been very strong. The state only asked for 20 CPCs to participate and they got 40 volunteers.) The goal is to answer four key questions:

Mr. Sachs shared a copy of the center-based child care survey, which gathers information on program characteristics, auspices, population served (including ages of children, child and family demographics), fees, facility costs, services provided to families (e.g. health and other comprehensive services, transportation, etc.), accreditation status, staffing, wages, turnover, curriculum, staff development, parental involvement, technology, budget, and revenues.

In addition to the paper surveys, the department is conducting program evaluations using the Infant Toddler Environmental Rating Scale (ITERS) and the Early Childhood Environmental Rating Scale (ECERS) and doing individual interviews with programs to gather cost data.

Although the data are still being analyzed, the study has already produced some interesting results. Parents are paying for most of the care, and they are paying a significant percentage of their income—27 percent if they are at the median income and using full-time center-based care. Turnover in center-based care is more than 40percent of teachers and 65 percent of assistants. And child care centers with large numbers of subsidized children are paying their teachers less than centers with fewer subsidized children.

Interpreting and Using Survey Data To Develop Rate Policies

Peggy Ball began the discussion by stressing the importance of being clear about your goals when conducting a market rate survey. Do you want to set rates or do you want to expand access as well? Do you want to give incentives for higher-quality care? Do you want to support existing quality? Do you want to collapse rates? Simplify? Market rate survey data can help state child care administrators accomplish all of these objectives.

North Carolina conducts a census survey of all regulated child care, rather than drawing a sample. The state collects data by county and by level of license (North Carolina has a five-level licensing system), which allows policy staff to look carefully at the relationship between the price of care and the level of the license. The last time the state did a survey (which was in 1997 and had an 85 percent response rate) the licensing system had only two levels. But the survey showed a 35 percent to 40 percent difference in rates between the two levels. That was helpful information for budgeting and planning purposes. In short, North Carolina child care market rates are closely tied to the state’s rated licensing system because that is the state’s goal: to support higher quality care and make it accessible to low-income families.

Barbara Kamara explained that the District of Columbia funds child care in contracted child care centers and homes as well as through vouchers. Both groups of providers receive the same rate, based on the market rate survey, although contract centers do not have the parent fee portion subtracted from their rate. The District is currently in the process of conducting a new market rate survey.

The last market rate survey was completed in 1998. In addition to questions on the price of care, the survey included a number of other questions designed to help the Office of Early Childhood Development (OECD) make policy decisions. For example, OECD learned that 58 percent of infant slots and 60 percent of toddler slots were purchased through vouchers but that 75 percent of the preschool slots were in contracted care. They also learned that a majority of providers were willing to expand, but that they needed financial assistance for renovations and equipment. As a result, the District allocated funds for equipment and began to work more closely with banks to secure funds for facilities.

The 1998 survey also demonstrated a need not only to raise rates but also to restructure them. To respond to this need, OECD established a rate-setting task force, which included providers of all types as well as representatives from military child care and the federal government centers. They prepared a series of recommendations, which included implementing a tiered reimbursement system; establishing rates for foster parents, children with disabilities, and Temporary Assistance to Needy Families (TANF) recipients; and revising co-payments. Deborah Lyons, who conducted the DC market rate survey, presented findings to the rate-setting task force. She also did a presentation for the OECD staff, because staff who administer child care subsidies often do not understand the child care market. These presentations were helpful in ensuring that everyone was on the same page and understood the data.

As a result of the survey, the rate-setting task force, and a lot of internal evaluation, DC has begun to revise its rate structure. A new tiered reimbursement system has been established, a new toddler rate was added to the reimbursement schedule, and DC has continued to work on other sources of revenue to subsidize costs like staff development, equipment, and facilities.

Rate Adjustments: Tiered Reimbursement and Rates for Special Needs, School-Age Care, and Informal Care

Abby Cohen gave a brief overview of rate adjustments, including special needs rates, tiered reimbursement for high quality, informal care (kith and kin), and odd-hours care. She explained that rate adjustments are necessary when you cannot address the costs for certain types of care within the market rate structure. Children who have special needs, and may require extra supervision or special equipment, are one example. It is not possible to rely on a market rate survey to gather information on the price of this type of care, since charging a higher price might be a violation of the Americans with Disabilities Act (ADA). States have developed several different ways to establish a rate adjustment for children with special needs. Some simply add a flat dollar amount onto the standard rate. Others base the adjustment on a percentage of the basic rate. Some have developed tiered systems with flat rates for various degrees of severity (mild, moderate, and severe). And some states determine the adjustment on a case-by-case basis and do an individualized assessment of the child’s needs.

Ms. Cohen spoke in more detail about what is required under the ADA and the importance of breaking the link between the cost of providing care to children with special needs and what private, fee-paying families can afford to spend on child care.

Twenty-four states and the District of Columbia currently have some form of tiered reimbursement rate for higher quality. Most states rely on national accrediting bodies to assess and monitor compliance, although a few have their own systems. Most typically, tiered reimbursement mechanisms include paying higher quality programs a percentage, or a flat dollar amount, over the standard rate. A number of issues were discussed, including establishing effective standards or measures of quality, determining the amount of the bonus, monitoring quality, and ensuring that accreditation support is available.

Many states have established a lower rate for informal, unregulated child care. In most cases, states pay these providers a percentage of the regulated family child care rate.

One participant also noted that states are experimenting with tiered reimbursement rates in a variety of ways. Some states, for example, are paying a higher rate for infant care to providers who agree to serve fewer children or who attend a special infant care training program. Others are paying higher rates to centers with directors that have a director’s credential or other staff with higher qualifications.

Pam Browning led a discussion of school-age child care. She stressed that most school-age child care programs cannot collect fees high enough to cover their costs, so some form of subsidy is necessary. Many families will not apply for individual subsidies (vouchers or certificates) for school-age child care because the co-payments are so high that the amount they receive in subsidy isn’t large enough to make it worth the time and paperwork. Market rate surveys also frequently misrepresent costs in school-age child care because the programs themselves don’t report the real costs. Ms. Browning further noted that the National School Age Child Care Alliance has a new accreditation system, and that state support for achieving accreditation is important.

The Relationship Between Rates, Parent Fees, and Other Innovative Strategies

Gina Adams reported on the Urban Institute’s Assessing the New Federalism Project and the lessons that have been learned about child care subsidies. She focused her remarks on two key points:

Implementation Matters – The way that states implement policies can have a profound impact on the outcome. For example, the rate might be $100 per week per child, but that doesn’t mean that the provider actually gets this amount if they don’t comply with all of the other rules and regulations, such as parent fees. Most states subtract parent fees from the rate before they reimburse the provider. But what if the provider can’t collect that fee from the parent? Quite a few of the providers the Institute spoke with said that they had just given up on trying to collect fees from low-income parents. Other issues are absence policies and "units of service"—that is, how the day is defined. Low-income parents often have transient work environments, so they move in and out of jobs a lot. That makes reimbursement for the provider even more difficult.

In seeking to address these issues, key questions to ask include: At what point is the family authorized for care? How does the provider know? Is there clarity about that communication? And communication flows two ways. Are the providers reading the paperwork they are sent? Is the state getting the paperwork out on a timely basis? Things often fall apart, and the bottom line is that the provider doesn’t get paid. Often, it has nothing to do with the rate.

Provider Fees Matter – Many states allow providers to charge parents the difference between the rate ceiling and the amount the provider actually charges. This is done to ensure that parents have maximum choice, but the net result is that parents can get hit with double fees—the state portion and the provider portion.

Ms. Adams also talked about the importance of staff training, caseloads, and the idea of "billing collaboratives," through which providers could come together so that they could have more efficient billing and paperwork transactions with the state.

Louise Stoney concluded the conference by reminding the group that establishing a market rate ceiling is only one part of the picture. The bottom line, for all child care providers, is how much money they receive each month. The per-child rate shapes this reimbursement, but there are many other factors that influence it as well, including additional provider fees, rate differentials, units of service, absence policies, etc. Ms. Stoney also mentioned examples of states that pay for child care through a combination of portable and direct subsidies. These include Wisconsin’s Quality Improvement Grants Program, Vermont’s Quality Bonuses, the Washington State Wage Ladder, North Carolina’s WAGES initiative, and New York State’s campus-based child care program. She also spoke briefly about the Comprehensive Child Development Program, which Texas developed several years ago but has since discontinued.

List of Appendices

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Page Updated: March 26, 2007