Childcare Subsidy with a Twist (Kansas and Utah)

Kansas and Utah handle subsidized childcare differently than all other states.

Most states in the U.S. support families in need with childcare subsidy funds by determining the eligibility of the family based on family size, income and special needs, help parents find childcare providers, set up childcare schedules and pay for the services by making payments to childcare providers. Parents do their share by paying a family fee, sometimes called a co-payment, to the childcare provider.

This process works well, but it has some shortfalls. By nature of the provider getting paid by the state or county, there is an implied business relationship between the government and the provider. In actuality, this is not the case. The families and children are the real clients of the government. The provider is simply a contractor or vendor that invoices the government for services being rendered. By having parents disconnected from this relationship between the government and the provider, parents can take on an attitude of entitlement and disconnection. Most of  the responsibility of getting paid falls on providers who have to complete timesheets or submit attendance information online and then wait for state staff to process the payment either by cutting hard checks or making electronic payments to the provider.

The goal of the welfare-to-work programs, which are the umbrellas of the childcare programs, is to get parents back to work, and while parents work, their children are taken care of by high quality childcare providers. The parent participation in form of the parent fee is meant to engage the parent and establish some accountability.  If parents do not pay this fee, or if providers “discount” the fee, just to get the subsidy business, the parent is generally out of compliance of the program rules. However, it happens routinely and often goes unnoticed.

The result is a disengaged parent.

The states of Utah and Kansas are addressing this problem by an entirely different approach to reimbursement for childcare. They believe that by requiring more personal responsibility and accountability of the parent they are benefitting the families for the long term. Parents receive their childcare benefits in the form of cash deposits into their Electronic Benefits Transfer (EBT) accounts. Parents have EBT cards, which are magnetic stripe cards which allow the parents to pay approved childcare providers directly by making electronic transfers.

There are benefits to all parties. The state improves the timing of payments to childcare providers and eliminates the administrative cost of paper checks. Funds for childcare are allocated according to need and provider tier, and are separated from other cash benefits. The parent is empowered and has to take an active role in paying the provider for childcare. This means that the parent is aware of the cost and the process of the childcare services, and has a better understanding of its value. In essence, the parent pays for a childcare slot at a provider just like private pay parents do. The provider receives payment quicker through nightly transactions.

Of course, there are also problems with this approach. The system does not track time of children spent at a provider. There is no timesheet filled out by the parent or the provider. In essence, the system is open-loop, where the government pays for services as they are projected and authorized, not as they really occur. In today’s environment, many states are finding that a large portion of childcare subsidy fraud occurs when providers and parents are colluding, and providers are paid for care that never takes place, for children that may not even exist. Some states are going through a process of collecting positive attendance record using swipe cards or biometric scanning to verify not only the attendance but the actual existence of a child. In a system where the parent pays the provider from a benefits account directly, fraud can be created simply by establishing an account and a relationship of care between a provider and a child. It is not difficult to create fictitious providers and children in a computer database, and without positive confirmation that either or both actually exist, fraud could be perpetrated for a long time without being noticed.

I think that the accountability and empowerment of the parent is critical for the parent and the child. In an ideal world, the system used in Utah and Kansas would be an excellent solution to a complex problem. But our world is not ideal. There are always people that are looking for ways to break the system and skim the cream off the top. The model where the parent pays the provider from an electronic account directly makes fraud easier to commit than any other method I can think of, easier even than the paper attendance sheets still so prevalent in childcare subsidy programs throughout the U.S.

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