Market Rate Surveys and Alternative Methods of Data Collection and Analysis to Inform Subsidy Payment Rates

OPRE Report 2017-115
Publisher: Washington, DC: U.S. Department of Health and Human Services, Administration for Children and Families, Office of Planning, Research, and Evaluation
Dec 30, 2017
Eiizabeth Davis, Lynn A. Karoly, Bobbie Weber, Pia Caronongan, Kathryn Tout, Patti Banghart, Sara Shaw, and Anne Partika

Key Findings:

  • Since the enactment of the Family Support Act in 1988 (which governed some of CCDF’s predecessor programs), federal subsidy policy has required that provider payment rates be informed by market prices based on the rationale that associating payment rates with prices would support parental choice and access. States and Territories conduct market rate surveys to collect information on child care prices and, under CCDF, States are encouraged but not required to set payment rates at the 75th percentile of the market price.
  • The Child Care and Development Block Grant (CCDBG) Act of 2014 reauthorized the CCDF program and expanded the options for States and Territories to include the use of alternative methodologies, such as a cost estimation model, when setting payment rates. Further, the CCDBG reauthorization in 2014 required States and Territories to demonstrate that their payment rates consider the costs associated with higher-quality child care.
  • The prices charged by a provider may reflect underlying differences in the cost of providing care based on the age of the child, the quality of the care, and other factors. It is important to recognize, however, that the prices or fees that providers charge families may not cover providers’ full costs if they have other sources of funding (e.g., grants or donations). In some locations, providers may be able to charge higher prices because of higher demand for child care services.

Over 1.4 million children in the United States receive child care subsidies each month, provided through the Child Care and Development Fund (CCDF) and administered at the state or local level (U.S. Department of Health and Human Services, 2015). Subsidies assist families in paying for child care arrangements so that low-income parents, including parents transitioning from welfare, can work or attend training and education programs.

One of the key determinants of access to child care for families receiving CCDF subsidies is provider payment rates set by States and Territories. When payment rates are low relative to market prices, providers may choose not to serve children using subsidies or may charge parents the difference between the subsidy payment rate and the price the provider charges parents who do not receive a subsidy (where allowed).

States and Territories now face new considerations when collecting data to inform the process of setting provider payment rates. This brief provides information on key issues and criteria for choosing whether to conduct a market rate survey, use an alternative methodology such as a cost model, or both.

The intent of the brief is to provide a concise synthesis of existing research and expert guidance on methods States and Territories can use to collect information on child care prices and costs to inform child care subsidy payment rates. The brief offers criteria to evaluate different methods to assess price and cost. The brief also discusses the concept of equal access that States and Territories address in their CCDF plans.