Besides the rise in enrollment, the child care subsidy expenditures in the county have increased for the several reasons:

• Shifts in the characteristics of the families in the subsidy program have occurred that increased costs, including more infants in care, more hours of care contracted per child, and larger families served with more children in care and lower co-payment requirements.

• Subsidy costs increased in part due to changes in the license status of providers. The number of licensed family providers has grown dramatically and the number of accredited providers increased at both the group and family level, while the number of lower-cost certified providers has not grown.

• Reported market rates have escalated much faster than the rate of inflation since 1995. A close examination of the market survey suggests that there may be serious overestimates of market costs due to errors in completing the survey.

• Increasingly, vendors without private-paying customers charge at the highest rates allowable, while many lower-cost vendors with market driven rates are paid at far lower rates. Basically, a new class of publicly-supported providers has been created that can take advantage of the maximum allowable community rates of the government subsidy program without experiencing the restraints of the private market. In 1995, 41 licensed group providers with 1,897 child care slots reported that they had not served three unsubsidized families at their "regular" private rates within the last six months. By 2000, 96 licensed group providers with 5,654 slots reported that they had not had three regular paying clients within the past six months.

• Costs increased because the subsidy program is reimbursing vendors who bill at the highest rates while paying few vendors who bill at the lowest rates. While only 25 percent of providers surveyed in Milwaukee County charge at or above the highest allowable rate, about half of subsidized children are billed at the highest rate.

Recommendations

Escalating child care rates impact government funding required for the Wisconsin Shares subsidy program. Given the number of families potentially eligible for subsidies and the current costs of the program, the state may need to substantially increase appropriations for child care and consider capping rate charges, raising family co-payment contributions, or establishing waiting lists for families seeking subsidies. Two changes to the rate setting process could remedy much of the rate inflation phenomenon. Specifically,

• Vendors without private paying customers could be reimbursed at a prescribed rate (e.g., the 25th percentile of the market rate). The current child care payment policy provides incentives for vendors to set rates high so as not to serve unsubsidized families, since providers without subsidized customers are allowed to bill the state at the highest rates. Eliminating family co-payments for vendors who charge low rates might also help control rate inflation.

• A more rigorous rate survey could eliminate much of the vendor confusion that appears evident in the rate reporting and resulting rate inflation. The survey should require all current vendors to provide a complete roster (minus family names) of all children in full-time care without Wisconsin Shares subsidies for the most current four-week period, including each child's date of birth, hours in care, amount paid and rate at which the child was charged. This unsubsidized population would be the basis of the rate survey. The small number of providers not in the state subsidy program would be surveyed separately. Ninety-two percent of group centers and 82 percent of licensed family providers are vendors in the state payment system.

Background on the Child Care Rate Setting Structure

The purpose of the state's required local child care rate survey is to determine annually the going rates for the private paying market. The rate survey is then used to set maximum allowable community rates (MCR) for subsidized licensed providers so that participants in the subsidy program will have access to most providers of day care services. (1) The maximum allowable rate is currently set, as recommended by the federal government, at a rate where 75 percent of licensed child care slots are available at this rate level or lower. Separate rates are set for four types of child care providers: state licensed group centers (which may serve 9 or more children), state licensed family centers (which may serve no more than 8 children at a time), adults caring for children in their homes who are "regularly certified" by the county after 15 hours of training, and adults who are "provisionally certified" by the county (that is, have less than 15 hours training or are caring only for children of relatives). State law allows providers with rates and charges above the MCR to bill the family directly for the difference between the Wisconsin Shares subsidy and the vendor's higher rate.

Maximum allowable weekly rates in Milwaukee County have escalated since 1995, rising well above the rate of inflation (11.7 percent). For example, the allowable charge for care of preschool children in accredited licensed group centers has risen 73 percent from $105 a week in 1995 to $182 a week in 2002. Allowable rate charges for accredited licensed family homes have risen 67 percent from $105 to $175. Allowable rate charges for certified care have increased 84 percent from $99.75 in 1995 to $164 in 2002. For accredited providers, the rate increases are even higher.

Table 1:

The table below shows the wide disparity of rates of licensed providers in Milwaukee County. In 2001, licensed group centers reported weekly fees as high as $252 per child for infant and toddler care while other centers were charging $140 a child. In licensed family centers, where overhead costs should be somewhat uniform, providers claimed weekly rates ranging from $65 to $350 for care of preschool and school age children.

Table 2:

The hourly rates allowed for part-time care of school age children in Milwaukee County have reached $6.07 per child for licensed group care and $6.67 for accredited licensed group care. Licensed family providers caring for children in their homes may charge up to $5.83 an hour per school age child, or $6.42 an hour if accredited. The rate structure for non-licensed providers is not based on market surveys, but is intended to serve as an incentive for family providers to seek training and greater regulation as a means to improve quality of care. Non- licensed family providers receive up to $3.28 an hour (56.25 percent of the maximum allowable hourly rate for non-accredited licensed family providers) if regularly certified and up to $2.19 an hour (37.5 percent of the allowable rate for non-accredited licensed family providers) if they are provisionally certified, that is have not completed 15 hours of training, or are caring only for relatives. (2)

Table 3:

Child Care Rates Highest in Poorest Neighborhoods

The gap between what child care vendors charge compared to what the private unsubsidized market will bear may have resulted in a decline in affordable child care in the central city for working women required to pay co-payments or to purchase child care on their own. Rates were compared for near northside and near southside neighborhoods in the Community Development Block Grant (CDBG) areas to other parts of the county.

• When analyzed by neighborhood, licensed day care providers in the poorest neighborhoods report the highest market rates in the local market survey, in sharp contrast to providers from the non-CDBG areas of the southside, who report much lower rates. A majority (58 percent) of slots with licensed group providers in the CDBG areas reported private rates at or above the maximum allowable community rate (MCR) for children ages 2-12. By contrast, in the working class southside outside the CDBG, only 12 percent of subsidized slots were with providers with private rates at or above the MCR. On the southside outside the CDBG, 37 percent of the slots were with providers charging below $150 per week per child; in the central city CDBG areas, only 20 percent of slots were with providers charging below $150 per week.

• Because the subsidy program is heavily concentrated in these poorest neighborhoods with the highest rates and because providers without private paying customers are also allowed to charge at the MCR, costs to subsidy program are considerable. As of May 20, 2001, 55 percent of subsidized 2-12 year olds in licensed group centers in the central city were charged at the maximum rates, compared to only 25 percent of the children in care in non-central city areas of the county. Only 11 percent of central city subsidy slots were charged at below $150, compared to 21 percent of non-central city slots.

• For parents with 2 to 12 year olds needing day care, the chances of finding reasonably priced care in the central city for less than $150 a week were also limited with licensed family providers. While 49 percent of the licensed family slots for children ages 2-12 in non-CDBG areas of the southside were priced below $150 per week, only 8 percent of the licensed family slots for children aged 2-12 in the central city were priced below $150. At the same time, 38 percent of central city slots (compared to 14 percent of the southside slots) were charged at or above the maximum allowable rate.

Rate Increases Higher than in the "Balance of the State"

When child care rates in Milwaukee County are compared to rates in other areas of the state, increases in the county are higher than in rural areas and other urban counties. This is most striking for the 2-12 year old population where rates were fairly comparable throughout the state in 1995: $105 maximum allowable weekly rate in Milwaukee County, $96.50 median allowable weekly rate in other urban counties, and $83 median allowable weekly rate in non-urban counties. By 2002, Milwaukee County rates had increased at a much higher percent (73 percent) than the other Wisconsin urban counties (56 percent) or rural counties (39 percent). (3)

Table 4:

Market Survey Factors Contributing to Rate Increases

Over time the local market rate survey has been closely associated with the maximum subsidy rate setting process that determines the highest payments respondents may receive from the Wisconsin Shares child care subsidy program. (4) Under these circumstances, there is some question as to whether the market survey rate setting process influences survey response. There are important factors that point in this direction.

• Those group and family providers who claim to have no private paying clients are allowed to bill the state at rates well above the private market average without providing documentation for their rates. At the same time, centers with private paying customers and market driven prices are paid based on their actual rates and in many cases are paid less the providers who claim no private paying customers.

• Public-pay-only providers are increasingly charging the state at the maximum allowable rate by excluding themselves from the market survey by setting high rates but with no private paying customers. In the Fall 2000 survey, 92 licensed group centers in the Wisconsin Shares subsidy program with a capacity of 5,614 slots excluded themselves from the survey because they had no paying clients (that is, 3 or more families paying "regular" rates within the last six months), and most (58 percent of the slots) reported the rates at or above the maximum allowable rate. Similarly, 162 licensed family providers with a capacity of 1,296 slots excluded themselves from the survey as having no private-paying customers, and 41 percent of these providers proceeded to charge the state at the maximum allowable rates.

• Group vendors with no private paying families are now two times more likely to list rates above the maximum allowable rate. For children ages 2-12, 60 percent of licensed group vendors with no private paying families reported rates at or above the maximum allowable. Also, 47 percent of family providers without paying customers report rates greater than the maximum allowable rate for 2-12 year old children.

• There may be some definitional problems with how private unsubsidized rates should be reported and which rates should be included in the survey. From the survey instructions, it appears that vendors with no current private paying clients are allowed to respond and include rates that are not substantiated. This could explain the very high market rates reported in the poorest neighborhoods.

• Rates for hourly part-time care are no longer surveyed. State regulations specify only two types of rates (for children under age 2 and for all other children aged 2 through 12). In fact, a third rate is derived rather than surveyed for after school and part-time care by dividing the highest rate the center charges for 50 hours of care a week by a divisor of 30. If a center charges $200 a week for 50 hours of care, this number is divided by 30 and the result is an hourly charge of $6.66 for part-time care.

• Private market rates are usually lower for older children who require less supervision, but child care providers with different rates for preschool and school age children are asked to report the highest rate they charge for children ages 2-12 for the market survey rather than the separate rates they charge for each age category.(5)

• Child care providers with sliding fee scales are instructed to report their highest rates rather than their usual fees.

Rate Structure Impact on Subsidy Costs

Child care rates were reviewed for Milwaukee County licensed child care providers included in the 2001 rate survey and compared to the rates paid by Wisconsin Shares for subsidized providers.

• Subsidy costs are higher because low-cost providers are much less likely to do business with Milwaukee County.

• In 2001, 25 percent of licensed family providers with at least one paying family reported fees of under $150 a week to care for infants or toddlers, but only 3 percent of licensed family providers receiving public subsidies charged below $150. At the same time, while 25 percent of licensed family providers with a paying family charged $180 or above for care of children under age 2, over half (54 percent) of subsidized providers charged the government rates of $180 or above for infant and toddler care.

Graph 1:

• Similarly, half of licensed family providers in the market survey had charges of under $150 a week for care of preschool and school age children. Yet only 15 percent of subsidized providers reported rates below $150 a week.

Graph 2:

• Licensed group centers in the subsidy program also charged higher rates than shown in the market survey. One-fourth of licensed group providers serving infants and toddlers reported fees of $200 and above, while 45 percent of licensed group providers in the government subsidy program were in this highest rate category.

  Graph 3:

  
  • Half of licensed group providers in the market survey reported regular fees of under $158 a week for preschool and school age children (ages 2-12), but less than a fourth of subsidized providers charged these lower rates.

  Graph 4:

  

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  Endnotes

  1 Jeri Ann Rose, Ann Schmitter and Debi Schwid, 2001 Final Report of the Child Care Advisory Committee: Recommendations on Child Care Rates and Policies for 2002 (Milwaukee: Planning Council for Health and Human Services, November 2001); Rose et al, 2000 Final Report of the Child Care Advisory Committee: Recommendations on Child Care Rates and Policies for 2001 (Milwaukee: Planning Council for Health and Human Services, November 2000).

  2 Milwaukee is the only Wisconsin county paying regularly certified family providers less than 75 percent of the hourly rate allowed for licensed family providers and paying provisionally certified providers less than 50 percent of the hourly rate allowed for licensed family providers.

  3 Only Dane County has higher allowable rates for some categories of care.

  4 Confusing the role of the local rate survey in determining market rates is the procedure of using the survey to collect "rate schedules" for day care providers with no regular paying clients. These schedules are not included in the survey's calculation of average market rates but are used to determine child care subsidies paid to the vendor.

  5 In licensed group day care centers, state law requires a worker to child ratio of 1:6 for children ages 2 to 2-1/2; 1:8 for children ages 2-1/2 to 3; 1:10 for children ages 3-4; 1:13 for children ages 4-5; 1:17 for children ages 5-6; and 1:18 for children aged 6 and above.

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