Child care subsidy programs are means-tested, state-run programs that help low-income families pay for child care in a variety of settings, including licensed centers and homes, as well as some unlicensed settings. Parents can access subsidies by submitting applications to state agencies, such as a workforce commission, along with required documents demonstrating eligibility. Federal eligibility requirements for child care subsidies mandate that adults in the household work or participate in education and training activities, that household income is less than 85 percent of the state median income, and that children are younger than age 13.1,i
States have considerable flexibility in setting specific guidelines on eligibility requirements. For example, states may set requirements regarding the number of hours parents must participate in approved activities, set limits on the amount of income a family can earn for initial and ongoing eligibility at lower levels than federal requirements, and may also identify priority groups to receive subsidies. States can also mandate child support cooperation as a condition of eligibility, but this mandate is not a federal requirement.3,4 Mandated child support cooperation means that the custodial parent must provide information to the state regarding the noncustodial parent to establish and enforce child support obligations in order to be eligible for child care subsidies.
States also have their own requirements for how frequently parents must inform the state of changes to income and employment and when parents recertify their eligibility for a subsidy. Federal guidelines require that states allow children to remain eligible for at least one year, regardless of temporary changes to a parent’s employment situation during that time.5,ii States may also set different initial, continuing, and redetermination income eligibility requirements.3
Once families are determined to be eligible and receive a child care subsidy, families must find and select care for their children and enroll with providers who accept subsidies and have available slots to provide care. Different state provider policies may affect the options for care available to families. For example, states may offer eligible families a voucher to cover the cost of child care, allowing parents to select a provider of their choice among those who accept the subsidy voucher with an available space for the child; the state then reimburses the provider for providing care based on the age of child, number of hours in care, and the rate the provider qualifies for.
States may also contract directly with providers and subsidize a portion of child care slots with a provider, and families would be able to select one of these spots if it was available. Contracting may give providers more financial stability by ensuring payments for providing care to a certain number of children with subsidies (assuming these spots are filled) and allow states to more directly influence the type and quality of care funded through subsidies (e.g., by contracting with providers meeting standards high-quality care);6 however, families may have fewer choices of providers under contracting arrangements. As of federal Fiscal Year 2019, only nine statesiii reported using contracting to deliver subsidies for any portion of their caseload and five of these states used contracting for less than 5 percent of their caseload.7,iv
An important aspect of the child care subsidy program is the dollar amount providers receive from the state (either through a voucher payment or contracting) to reimburse for the cost of caring for children with subsidies who enroll in their care. Base reimbursement rates in a state pay for care by providers who meet at least the minimum state standards to qualify to participate in the subsidy system and must be sufficient to cover federal health, safety, and staffing guidelines.1 States may also reimburse at higher rates for providers meeting higher quality standards (e.g., higher rating levels in state quality rating and improvement systems, accreditation, or other quality standards) and may also require providers to participate in the quality rating and improvement system (QRIS) to serve families with subsidies (some states further require participation at a specific QRIS level).53 Reimbursement rates received by providers are made up by both a state portion and a family copayment. As described in this review, the current research base is not clear what the optimal level is for provider reimbursement rates, particularly rates that ensure access to quality care.
The federal government uses percentiles to measure and compare states’ provider reimbursement rates on how adequately their subsidies ensure equal access to the child care market among subsidy recipients. States conduct their own analyses of the prices associated with their child care slots through a market rate survey or alternative methodology, these slots are ranked by price charged, and the base state reimbursement rate is then compared to that ranking.8 For example, if a state’s base subsidy reimbursement rate is found to be at the 30th percentile of the child care market, then 70 percent of child care slots charge higher rates than the state’s reimbursement rate. Market rate surveys (or alternative methodologies, such as cost modeling) should be used by states to determine payment rates1 and must be conducted every three years and no earlier than two years prior to states’ submission of their Child Care Development Fund (CCDF) plans.9,10,70 However, not all states adhere to this guidance. As of July 2021, 20 states are using out-of-date market rate surveys (see Table 3a for details).v
The federal government considers state reimbursement rates at the 75th percentile or above (covering three-fourths of slots in the state based on a market rate no older than two years old) as providing low-income families with equal access to the child care market, but percentiles vary widely between states. The 75th percentile guideline was established as a benchmark and proxy for equal access in the 1998 final rule governing the CCDF after welfare reform; this benchmark was already recognized by states due to its inclusion in Title IV-A child care programs of the Social Security Act.10,11,12,13 It is important to understand that even if a state meets the 75th percentile benchmark, this does not necessarily ensure equitable access to high-quality care, because the price that child care providers can charge does not always reflect the true cost of providing care.
A recent analysis by the Center for American Progress found that subsidy reimbursement rates are often insufficient to cover the estimated cost to providers of infant care that meet minimum licensing standards in center- and home-based settings.75 Given that the vast majority of states have reimbursement rates that do not adequately cover the cost of care at minimum licensing standards, state subsidy reimbursement rates often fall far short of providing access to high-quality care for infants and toddlers.vi
Other analyses suggest that different types of providers may benefit or lose out from state reimbursement rates depending on how provider rates are determined. For example, if providers set rates relative to family income or the amount providers assess as equal to parents’ ability to pay within their local market, a market rate survey may not accurately capture what it costs to provide services to families, but instead may capture the price providers feel families are willing or able to pay. If provider prices are set in this way, state reimbursement rates using market rate surveys may be set too low relative to costs for some providers (e.g., those who serve infants, providers in low-income or rural areas).74
Families participating in the subsidy program may also be required to make copaymentsvii to providers for the care of their children; this copayment is a part of the state reimbursement rate. States have flexibility in how copayments are calculated, who is exempt from copayments, and how high copayments may be;3 these policies matter because high copayments may present a financial burden for families and reduce access to care,81 although federal guidelines stipulate that copayments may not be a “barrier to families receiving assistance.”1 Following CCDF rules, some states allow providers to charge families an additional fee beyond their copayment if state reimbursement rates are lower than what the provider typically charges private-pay families.42
Who Is Affected by Child Care Subsidies?
According to the Office of Child Care, approximately 1.4 million children and almost 858,000 families benefited from child care subsidies each month in federal Fiscal Year 2019.15 Children under age 3 comprised 28 percent of the children whose care was funded by subsidies. Among families served by subsidies, 40 percent had family incomes below the federal poverty level.15 The Government Accountability Office estimates that approximately 25 percent of children eligible for subsidies under state rules receive them; this low participation rate may be attributed in part to insufficient funding, leaving many families on waitlists, and in part to the administrative burden families face when applying.21,22 Families may encounter difficulties acquiring and keeping their subsidies because of complex state eligibility requirements and recertification processes.23
Recent research reveals a significant gap between the percentage of Hispanic families in the US who are eligible for child care subsidies and the families who receive them; Hispanic children account for 35 percent of eligible children but just 20 percent of the population served with CCDF subsidies.64 Although Black children are overrepresented among subsidy recipients (25% of the eligible population and 41% of the recipient population), analyses suggest that these children are more likely to live in families with very low-incomes than other groups of eligible children and this may drive their overrepresentation among recipients.64,viii Although these analyses do not consider other public programs that families may have access to (e.g., Early Head Start/Head Start, public pre-kindergarten), differential access to subsidies between eligible children by race and ethnicity is important to consider for equity.
The high cost of child care may create financial burdens for families and child care subsidies may be useful to many families who meet eligibility rules. For example, according to Child Care Aware of America, a national organization that tracks child care access and affordability, the average annual cost of center-based care is $11,504 for infants, compared to $9,039 for 4-year-olds in 2019, with variation between states.20,ix The cost of center-based infant care ranges from 28.1 to 86.9 percent of median income for single parents and 7.4 to 17.5 percent of median income for married-couple families, depending on the state in which they reside. Although home-based child care is typically less expensive, cost figures remain high relative to income: the cost of infant care in home-based settings is 20.6 to 65.7 percent of median income for single-parent families and 5.4 to 11.8 percent for married couple families.20,x
The federal government has set the threshold for child care affordability at 7 percent of family income, including for subsidy copayments.18 Many families typically pay much higher percentages of their income for child care, especially for the youngest children.19 Even for families who participate in the child care subsidy program, child care expenses may exceed this affordability benchmark if families have high subsidy copayments or are charged additional fees by providers.
Of the children under age 3 benefiting from subsides: 74 percent of infants and 75 percent of toddlers were cared for in centers and 20 percent of both infants and toddlers were cared for in home-based settings (family and group homes, other than the child’s own home).16,xi The share of infants and toddlers in home-based care settings is slightly higher than among preschoolers benefiting from subsidies;16 consistent with other evidence suggesting home-based arrangements are preferred among infants and toddlers.17
Subsidy policies can affect families differently depending on the type of care setting a family prefers or has access to in the community. Between 2011 and 2017, the number of licensed home-based providers in the child care market decreased significantly (including for license-exempt home-based providers) and the number of home-based providers receiving subsidy payments through the Child Care and Development Block Grant (CCDBG) also decreased steeply during this time; although the number of children served through CCDBG decreased in this time as well, the decrease in the number of home-based providers and those that received subsidy payments was greater than the decline in children served.24,25 State regulations, the increased emphasis on quality rating and improvement systems, and changes to subsidy policies may affect the number of home-based providers in the market generally and who participates in the subsidy system.24,25 A 2021 review by the Urban Institute found that the participation of home-based providers in the subsidy system was driven by “the ease or difficulty of the provider approval process,” “payment amounts and processes,” and the extent to which states have implemented family-friendly policies, such as annual redetermination” (p. 2).76
With fewer home-based providers participating in the subsidy system, families may be left with fewer child care options and choices meeting their preferences. Many families rely on home-based providers for benefits such as flexible hours, cultural fit, or proximity to home, and a decrease in these providers in recent years has exacerbated the problem of child care deserts,xii especially in rural areas and for infants and toddlers.26 Ensuring adequate reimbursement rates, particularly for home-based providers, may help preserve the supply of this option for families and retain quality providers who participate in the licensed market.
What Are the Funding Options for Child Care Subsidies?
Child care subsidies are funded through the Child Care and Development Fund (CCDF), which integrates discretionary funding from the Child Care and Development Block Grant (CCDBG) and mandatory and matching funding from the federal Child Care Entitlement to States (CCES).58 The CCDBG is currently federally funded at $5.911 billion for federal Fiscal Year 2021, an increase of $85 million from Fiscal Year 2020.27,59,71,xiii The CCES is currently federally funded at the same level as for federal Fiscal Year 2020 ($2.917 billion).59,71 These funding figures do not account for COVID-19 pandemic relief funds passed in federal Fiscal Years 2020 and 2021. Although most funds are distributed to states and territories, tribes are allocated “no less than 2% of discretionary CCDF funding and up to 2% of mandatory CCDF funding” (p. 7); in Fiscal Year 2020, tribes received a total of over $393 million in combined mandatory and discretionary funding.65
The CCES matching funds require both a state match and maintenance-of-effort (MOE) expenditures.xiv State matching funds may come from public funding, public pre-kindergarten funding (up to 30% of the match and 20% of the MOE), and private donated funds.60 As of September 30, 2019 states expended approximately $6.7 million from Grant Year 2019 awards, including $14 million in excess of matching and MOE requirements.61 States may also use up to 30 percent of the funding received for the Temporary Assistance for Needy Families (TANF) program to fund child care subsidies;62 in federal Fiscal Year 2018, states transferred $1.5 billion from TANF to CCDF.63
States vary in whether they maximize federal dollars by contributing the full match and MOE required funds, whether funds are obligated and liquidated in the necessary timeframe,xv and whether they supplement these funds with additional state contributions. In Grant Year 2019, four states (Colorado, Georgia, Louisiana, and Utah) reported excess matching66 or MOE67 funds contributed from state spending on child care subsidies.
Another source of funding is the federal Preschool Development Grant Birth Through Five (PDG B-5), a competitive grant program that provides states with money for early care and education.28 Initial PDG B-5 grants were awarded to 45 states in December 2018:29 20 of these states received renewal grants, and 3 states received new initial grants in December 2019; 30 3 additional states received renewal grants in April 2020.31 The most recent renewal announcements for the PDG B-5 grants includes incentives for states that offer more generous subsidies for infant and toddler care.32,68
As a result of the COVID-19 pandemic, the child care subsidy program and the larger child care sector received an influx of federal funding in 2020 and 2021. Nearly $32 billion in funding has been allocated to the child care subsidy program (including mandatory, matching, and discretionary funding for states, territories, and tribes) through the Coronavirus Aid, Relief, and Economic Security (CARES) Act,77 Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act,78 and the American Rescue Plan Act.79 Funding in these relief packages helped providers prepare for and respond to the COVID-19 pandemic, granted flexibility to states in providing child care assistance (including to essential workers), provided funds to cover staff wages and benefits, and provided financial relief for families, as well as many other important uses. The American Rescue Plan, signed into law in March 2021, also allocated an additional nearly $24 billion dollars for child care stabilization grants, intended for states to distribute quickly to providers to stabilize the child care market.80
- States may allow children up to age 19 if they have disabilities or are in the Child Protection System.
- A 12-month eligibility period applies unless a loss of employment is permanent or parent income exceeds 85 percent of the state median income.
- State counts include the District of Columbia.
- States may also provide cash payments to families to cover a set amount of the cost of child care. This approach is uncommon: only three states take this approach.
- Due to the COVID-19 pandemic, the federal government allowed states to apply for a one-year waiver on conducting their market rate survey or alternative method when submitting 2022-2024 CCDF plans, due to the disruption to the child care industry during the pandemic. Given this, we consider states in compliance in 2021 if their most recent market rate survey or alternative method used to inform reimbursement rates was conducted in 2018 or more recently.
- For example, Workman estimates that the US average annual cost of licensed center-based infant child care is $15,900 for base-quality care and $28,800 for high-quality care. The figures for FCC settings are $13,700 and $29,800, respectively. Across many states, the price of care falls below these cost figures. See Workman, S. (2021).
- Parent copayments are the payments states require parents to make to providers. The total provider reimbursement rate includes the parent copayment and the payment to the provider made by the state. Parent copayments are sometimes referred to as fees. However, fees may include other types of payments, including if states allow providers to charge families the difference between the provider reimbursement rate and the rates charged by the provider to private-pay families.
- See also Ullrich, R., Schmit, S., & Cosse, R. (2019). Inequitable access to child care subsidies. CLASP. https://www.clasp.org/publications/report/brief/inequitable-access-child-care-subsidies
- Estimate uses average of program-weighted averages (method #3, see p. 40 of the Appendices/Appendix XX). Caution should be used comparing and interpreting price figures nationally; local context should be considered.
- See pp. 6-15 of appendices (Appendices III – VI). The cost of center-based toddler care ranges from 25.3 to 863.1 percent of median income for single parents and 7.4 to 14.7 percent of median income for married-couple families, depending on the state they reside in. The cost of toddler care in home-based settings is 20.6 to 65.7 percent of median income for single-parent families and 5.4 to 11.0 percent for married couple families.
- Infants are defined as children from birth to less than one-year old. Toddlers are children one-year to less than 3-years old. Home-based settings include family homes and group homes (differentiated by number of children in care). The remaining share of infants and toddlers are either in care in the child’s home or did not have valid care setting data.
- A child care desert is a community with insufficient child care capacity to meet demand; it is sometimes defined as a census tract with at least 50 children under age 5 with either no child care providers, or with child care slots available for less than one-third of children. Source: Malik, R., Hamm, K., Schochet, L., Novoa, C., Workman, S., Jessen-Howard, S. (2018). America’s child care deserts in 2018. Center for American Progress. https://www.americanprogress.org/issues/early-childhood/reports/2018/12/06/461643/americas-child-care-deserts-2018/
- In Fiscal Year 2018, the CCDBG received the single largest funding increase in the program’s history. A report from Child Trends found that states planned to use funds boost provider payment rates (44 states), expand income eligibility (14 states), and reduce parental copayments for child care (11 states). Over half of states reported that they planned to use the funds to implement various quality improvement initiatives.5
- To access their full allotment of matching funds, states must match federal funding at the prevailing Federal Medical Assistance Percentages rates. Maintenance-of-effort levels require states to spend at the same level of spending based on state spending on the now-repealed Aid to Families with Dependent Children child care assistance programs (fiscal years 1994-1995).
- If states do not obligate and liquidate funds in the required timeframe, these funds are released back to the state and reallocated for use by other states.