Child Care Rate Study
November 29, 2000
Background
DSHS sets child care subsidy rates on a regional basis to provide equal access to subsidy recipients throughout the state. The core of the process is a survey of childcare providers conducted on a biennial basis. OFM was required to conduct a study of this process in the 1999-2001 supplemental operating budget. The research work was carried out by the Social and Economic Sciences Research Center of WSU under an interagency agreement with OFM. A report is due to the legislature on December 1, 2000.
Conclusions
The DSHS survey process is accurately capturing market prices for childcare. This conclusion is based on extensive comparisons of the DSHS survey data with similar data collected and maintained by Child Care Resource and Referral Centers. Comparison with national inflation rates for childcare also speaks for the accuracy of the DSHS survey process. In addition, because of the way the survey results are used, any bias in reported prices would have to vary from region to region to have any real impact on subsidy rates.
Childcare prices vary throughout the state largely because of varying costs for facilities and labor. This conclusion is based on an analysis of the cost data provided by survey respondents and cost data gathered from external sources. A formal statistical model was developed to support this conclusion.
There is no evidence that DSHS subsidy rates have a significant impact on the market prices for childcare. This conclusion is based on a detailed statistical examination of the relationship between DSHS rate changes and subsequent revisions of prices by providers.
The presence of DSHS as a payer has multiple impacts on the childcare market. DSHS subsidies make child care affordable to some families with very low incomes. DSHS subsidy recipients increased from 16% to 19% of the market between 1992 and 1998. However, this increased market share took place coincident with expanded eligibility. Therefore, the added DSHS market share likely includes many families who would have paid for childcare without assistance. Moreover, the total expansion in the number of licensed slots during this time period was three times as large as the increase in DSHS subsidy recipients. Economic theory tells us that without the funds provided by the DSHS subsidy system, there would be fewer childcare slots available and the price of childcare would be lower.
A lower level of geography could be used as the basis of rate setting. Currently the rates are set on the basis of the six DSHS administrative regions. Rates based on counties would be the next logical step. This would have the effect of increasing the rates paid in some largely urban counties and correspondingly reducing the rates paid in rural areas. The administrative complexity of this change would need to be examined.
The formal role of "usual and customary" rates in the setting of individual subsidy amounts could be examined. The official policy is that the subsidy amount should be based on the lower of a DSHS maximum rate and the provider's usual and customary rate. There is clear evidence that this policy is being ignored in a significant number of cases. It should be noted that providers are free to change their usual and customary rate at any time.
Future Research Issues
As childcare expenditures becomes more fiscally important, continuous and consistent databases might be established for forecasting and policy analysis, as has been done for welfare and medical expenditures.
The supply and demand equilibrium in childcare markets could not be studied in this report because of a lack of data. Methods for measurement of this aspect of the childcare market could be studied and developed.
Quality of childcare and the public role in it remain important issues. However, it is not clear what the efficient policies are for achieving change in this area, or that the public subsidy rate setting process is a key component in those policies. Experiments, evaluations and studies of quality initiatives are underway in Washington and other states and should be followed.
Last modified: December 20, 2000
E-mail: OFM.Forecasting@ofm.wa.gov
