SD5 - Report on the Study of a Tiered Reimbursement Subsidy Program, Based on a Quality Rating and Improvement System (SJR 54, 2014)


Executive Summary:
This report was required by Senate Joint Resolution No. 54 (2014), in which the General Assembly requested the Virginia Department of Social Services to study a tiered reimbursement subsidy system, based on a quality rating and improvement system (QRIS), for child care providers.

All states in the U.S. have a state-managed child care subsidy program and thirty-eight states have a QRIS program. Some states have linked the subsidy and QRIS programs to create a tiered subsidy reimbursement system. The governance and policy structures for these programs vary significantly across states with states implementing programs in different ways. A common principle, however, for tiered reimbursement across the states is to provide higher reimbursement rates or other unique benefits to providers that offer high-quality child care services. While the development and implementation of a tiered reimbursement system is a complex process that requires coordination among multiple programs, it can be accomplished with careful and strategic planning.

If Virginia determines that the state should implement a tiered subsidy reimbursement system based on QRIS, the development and implementation of a pilot would be a prudent first step to establish and evaluate processes and procedures; analyze actual parent and provider participation; confirm the adequacy of initial reimbursement rates; increase the number of child care providers participating in QRIS to create the critical mass needed statewide; and build system infrastructure and capacity for a full-scale, statewide tiered reimbursement system. The pilot should be conducted for a minimum of two years or until all systems (data, governance, training, parent and provider education) are structured .and tested.

KEY FINDINGS

• At least twenty-two states use a tiered subsidy reimbursement system that links the child care subsidy reimbursement rate to specific standards of quality.

• States interviewed for this study indicated that tiered reimbursement has been a factor in increasing the number of children enrolled in quality programs and for encouraging providers to pursue higher levels of quality care. For example, Pennsylvania and Wisconsin are both experiencing a level of success with their tiered reimbursement systems. Approximately 67% of children receiving child care subsidies in Pennsylvania are in a Keystone STARS program. In Wisconsin, 72% of the children in the Young Star program are in child care programs with a star rating of 3 or above.

• Tiered reimbursement is most effective when it is aligned with other policies and programs that are designed to improve program quality and accessibility, such as efforts to train and retain qualified staff. For example, Maryland offers providers and administrators employed at Maryland Excels (QRIS) sites a credential bonus. This one-time or annual bonus is given to early childhood providers for reaching specific education and training benchmarks. Vermont works with private business organizations to provide discounts on books and educational materials and equipment to QRIS-participating programs. Vermont also awards a bonus payment to programs for each level achieved in the QRIS.

• An adequate pool of high quality programs that are willing to participate in the subsidy system is foundational to the successful implementation of a tiered reimbursement payment system. Oklahoma and Wisconsin stress the need to have an appropriate supply of quality programs available to meet the demand. This will help alleviate the potential of a shortage of programs that are available to serve families across the state.

• High personnel costs in child care settings drive the cost of providing care, and increasing the quality and skill level of the child care workforce increases this cost. States implementing tiered reimbursement must consider this reality, and make resource decisions that align with their early childhood development goals. Preliminary projections indicate that an additional $6.3 million per year in direct subsidy costs could likely be required upon full implementation of a tiered reimbursement subsidy system in Virginia, plus a one-time automated systems upgrade at approximately $500,000 to support the expanded program.

• Increased operating expenses, difficult to estimate at this time without concrete program parameters, would also be required. However, these costs could be accurately projected during the course of an initial two-year pilot program. The administrative cost of the pilot is estimated at $306,900 in Pilot Year One and $438,150 in Pilot Year Two. These figures do not include direct subsidy payments that would occur during the pilot.

RECOMMENDATIONS

1. A pilot project, including an evaluation of the tiered reimbursement system, should be considered to determine the actual level of required resources to manage and administer a full-scale tiered reimbursement system.

2. Targeted efforts should be undertaken to ensure that there is an adequate pool of high quality child care programs available and interested in participating in the tiered reimbursement system.

3. To support the continuous improvement of child care quality and the successful implementation of a tiered subsidy reimbursement system, efforts should continue to automate processes and link key data systems; more closely coordinate related functions including child care subsidy, the Virginia Star Quality Initiative (Virginia's QRIS) and licensing of child care facilities; and advance professional development of the child care workforce.