The full cost of high-quality child care is commonly equivalent to tuition at a four-year public university. To help working families with low incomes afford care, child care subsidy programs provide financial assistance to improve families’ access to care. And yet, child care often remains difficult for many families to access due to the high cost burden placed on families, even with subsidized child care.
The federal Build Back Better Act proposes a historic investment in the care of infants and toddlers that increases access and affordability by:
Research on the impact of the receipt of child care subsidies and state spending on subsidies show a positive impact on families’ access to needed services, the ability of parents to work, and families’ ability to have sufficient household resources.
Currently, variation in state child care subsidy policies mean eligible families face substantial variation in what they are expected to contribute to the cost of child care through copayments and fees depending on the state in which they live. For example, a family of three earning 150 percent of the federal poverty level who qualify for child care subsidies would pay no copayment toward the cost of child care in South Dakota and Utah. But this same family would face steep costs – at 10 percent of family income or higher – in seven states (North Carolina, Colorado, Wisconsin, New Hampshire, Montana, Oregon, and Hawaii).
The Build Back Better Act proposes a $400 billion investment in child care and universal preschool. This funding will create the Birth through Five Child Care and Early Learning Entitlement to subsidize the cost of child care for most working families and pay providers a rate that allows them to compensate their workers at an adequate wage and provide high-quality services to infants, toddlers, and their families. States would opt into the entitlement program in place of current state subsidy programs, with federal funding provided for 6 years.
Capping Copayments Reduces Families’ Out-of-Pocket Child Care Expenses
Critical to improving parents’ ability to access subsidized child care, the Build Back Better Act limits copayments to 7 percent of family income for families with incomes up to 250 percent of their state median income (SMI), with a sliding scale of copayments for eligible families with lower incomes. Also in the proposed legislation, providers may not charge families additional fees beyond copayments, which would further reduce families’ out-of-pocket child care expenses in many states.
Setting Provider Reimbursement Rates to Cover the True Cost of Providing Care
Additionally, under the new entitlement program, the Build Back Better Act changes the way states set provider reimbursement rates, requiring states to use cost estimation models rather than market rate surveys to set reimbursement rates. Cost estimation models can be tools to set reimbursement rates that are more representative of the true cost of providing high-quality care, rather than merely the price charged by providers. Market prices, currently used by most states to set provider reimbursement rates, may differ from the true cost of care. For example, providers may set rates based on families’ ability to pay or subsidize the care of infants and toddlers through higher prices charged for the care of preschoolers (e.g., due to higher caregiver-to-child ratios). Moving to a cost estimation model may also allow states to set rates that account for living wages for caregiver compensation that are similar to elementary school educators with similar qualifications, something the Build Back Better Act requires of states participating in the child care entitlement program.
As of July 1, 2021, only the District of Columbia and New Mexico are using cost models to set their reimbursement rates. Five states have base reimbursement rates that fully or nearly cover the cost of base-quality care (as estimated by the Center for American Progress), including Hawaii, Virginia, Washington, Illinois, and South Dakota.
As with the current child care subsidy program, states will be required to apply for funds and opt into this program. For families in states that do opt in, these policy changes would lead to a meaningful reduction in out-of-pocket child care expenses; families with infants and toddlers in states that elect to stay with the current child care subsidy system may still be left with high out-of-pocket expenses as a share of family income, depending on how the state sets family copayments and policies on additional fees. These out-of-pocket child care expenses can have a huge impact on the total resources that families have available to provide for their children. (See how your state measures up in the “Same Family, Different Resources” 2021 simulation.)
The Build Back Better Act proposes a significant investment to expand child care subsidies, which have demonstrated beneficial impacts on a number of policy goals that strengthen the system of care for families during the prenatal-to-3 period. To learn more about what state progress is being made on child care subsidies and to see how your state may benefit from policy changes in this legislation, check out your state’s roadmap in the 2021 Prenatal-to-3 State Policy Roadmap.
(Legislation Source Note: This post is based on the information in the Build Back Better Act [H.R. 5376] as written in the House Rules Committee Print 117-18 as of November 3, 2021. As of posting, the legislation is still being debated in Congress and details may change.)
