State Child Care Advisory Committee
Issue Brief: Hourly versus Unit Rates as a basis for Child Care Assistance
Calculation
Date: January 10, 2013
Overview/Summary:
The Iowa Department of Human Services (DHS) has received recommendations from the legislature to
change the way it calculates reimbursement rates for children served under child care assistance from
the current unit rate to an hourly rate. The SCCAC has discussed this issue and recommends that DHS
retain its current policy of a unit rate calculation.
History/Background:
Child Care Assistance (CCA) is a benefit provided to low income families who meet the criteria of
eligibility based on family income and the number of hours working or attending school. The
reimbursement for child care expenses is calculated based on units. A unit is a 5-hour block of time. The
unit-based measure pays the provider for the full amount of hours even if the child was only in care for a
portion of that time period. So if a child is in care only after school, for example, from 3pm to 5pm, the
provider would receive a full unit for the child. There have been some proposals from the legislature to
change the rate calculations from units to actual hours of attendance as a way to save money or extend
the money to pay for more child care by paying child care providers only for the hours of service
provided.
The legislature requested DHS conduct a cost analysis comparing the unit versus hour rate which was
provided in January 2011 (see attached). The analysis showed that shifting to an hourly rate would save,
monthly, $1.2 million, broken out by provider category: A-B Home providers, $748,975; C Home
providers, $120,971; and Infant care, $189,067. The CCA subcommittee of the SCCAC discussed the issue
with input from members including a number of both center and home providers and is recommending
to the full committee not to support a change from unit-based to hour-based rate calculation. Others
noted that the hourly rate structure takes more paperwork only to receive a lower reimbursement total.
The group understood that the savings to the state would come out of funding that is currently going to
centers which are already underfunded due to a lagging reimbursement rate. To illustrate the cost of a
proposed change in rate calculation methods, one member’s analysis of the impact based on a
hypothetical center’s enrollment of 50 children for 50 weeks found that the center would lose $325,250
a year in revenue. The group thought it was important to frame at least part of the discussion of rate
calculation in terms of its potential impact on future access to child care, a growing concern across the
state as the child care industry becomes less economically viable.
The State Child Care Advisory Committee is a group formed within the Quality Services and Programs Component
Group focusing on Child Care and Early Education topics. For more information, go to:
http://www.earlychildhoodiowa.org/state_system/ECI_comp_wrkgrps/quality_services_programs/state_child_car
e_advisory/index.html
During the discussion it was suggested that only the rate calculation for school age care be changed to
an hourly method since that is the segment of care where most of the savings is realized in the cost
analysis document. The reason for this is that school age children are in care for 3 hours a day on
average and the unit rate assumes payment for a five hour period. The group decided not to include this
change in their final recommendations.
Current Actions:
The subcommittee decided to recommend to the SCCAC not to switch to an hourly-based rate
calculation for the following reasons:
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The hourly rate increases the variability of income rather than assuring providers a consistent
level of support. Providers cannot budget expenses or staff on a widely variable income. Private
pay child care is not purchased hourly, it is sold per slot.
Reduced payments create another reason for providers to opt out of the CCA program and
further reduce access to child care for families of low income. Centers with a significant current
percentage of children served through CCA may have to close given a large loss in revenue,
reducing access for all families.
Current provider child care business models that include CCA payments are extremely hard to
make profitable for providers, especially because the current rate level is not the current market
rate but based on 2004 plus 2%. Any addition reduction in these payments would make CCA an
untenable option for providers.
Excessive paperwork, revamped billing procedures and administrative costs for providers, state
and parents may reduce savings so the proposed change no longer makes sense. With the
reduced costs also come smaller co-pay amounts which are harder for providers to collect since
the specific co-pay amount may be so small as to not cover billing expenses. Some providers
noted that the hourly rate while perhaps reducing costs for parents still may be perceived as
larger to parents because there would be more hours than units during a typical billing period,
and the change may be seen as an increase. In actuality, depending on the hourly rate, the
change could end up costing full time child care users more money.
Long-term changes in the rate calculation methodology only make sense after CCA is adequately
funded in the FY14 appropriations.
The CCA Subcommittee is seeking approval of this recommendation from the full SCCAC.
Recommendations from the Committee:
Pending formal approval, the SCCAC would recommend that DHS maintain the current system of basing
CCA payments on a per-unit basis.
The State Child Care Advisory Committee is a group formed within the Quality Services and Programs Component
Group focusing on Child Care and Early Education topics. For more information, go to:
http://www.earlychildhoodiowa.org/state_system/ECI_comp_wrkgrps/quality_services_programs/state_child_car
e_advisory/index.html