Low-Income Families and the Cost of Child Care: State Child Care Subsidies, Out-of-Pocket Expenses and the Cliff Effect

Low-Income Families andthe Cost of Child CareState Child Care Subsidies,Out-of-Pocket Expenses,and the Cliff EffectSarah Minton Christin Durham December 2013 Low-Income Families and the Cost of Child Care State Child Care Subsidies, Out-of -Pocket Expenses, and the Cliff Effect Sarah Minton Christin Durham December 2013 Copyright © December 2013. The Urban Institute. Permission is granted for reproduction of this file, with attribution to the Urban Institute. This paper was funded by the Urban Institute. The authors would like to thank Gregory Acs, Linda Giannarelli, Gina Adams, and Monica Rohacek for their thoughtful review. They also acknowledge the Administration for Children and Families, Office of Planning, Research and Evaluation, for their funding of the CCDF Policies Database, which provides the detailed information analyzed in this paper. The authors would also like to thank Kathryn Stevens and Melissa Medeiros for their research assistance. The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance problems facing the nation. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Contents What Is CCDF, and Who Is Eligible? 2 What Is the Full Price of Care? 3 How Much Do Families Receiving Child Care Subsidies Pay? 3 How Do Families’ Child Care Costs Rise with Income? 4 California 8 Georgia 9 New Jersey 9 Idaho 10 New Hampshire 11 Washington 13 Considerations for Establishing Child Care Subsidies 14 Notes 15 References 16 About the Authors 17 Low-Income Families and the Cost of Child Care High prices can make it very difficult for low-income families to access reliable child care, particularly in formal settings (Sandstrom, Giesen, and Chaudry 2012). The average annual price of full-time care for an infant in a child care center ranges from $4,600 in Mississippi (about 30 percent of annual full-time minimum-wage earnings) to $15,000 in Massachusetts (roughly equal to annual full-time minimum-wage earnings; see Child Care Aware of America 2012). Child care subsidy programs such as those funded under the Child Care and Development Fund (CCDF) help low-income families pay for care. For families that obtain subsidies, child care assistance programs cover some or all of the price of care, with families contributing a copayment. Very low income families are usually assessed a very low copayment, sometimes equal to zero. As family income increases, the amount of the copayment increases. Once income exceeds a certain limit, which varies by state and family size, families are no longer eligible for subsidized care. State copayment systems vary widely on a number of factors, including minimum and maximum copayments, how copayments increase as family income rises, and the amount paid by families whose income is approaching the subsidy income limit.1 All these factors affect out-of-pocket child care costs for subsidized families. In this paper, we first give an overview of CCDF child care assistance, touching briefly on how certain eligibility policies vary across states. Next we discuss the full, unsubsidized out-of-pocket cost of child care as well as the amount families receiving child care assistance pay. We then turn to the focus of the analysis: how subsidized families’ costs rise with increases in income, up to the point where families no longer receive assistance and become responsible for paying the full amount charged by providers. At this point, families may see relatively small increases in income coupled with large increases in child care costs, sometimes referred to as the “cliff effect.” We examine selected states as examples of how families’ child care costs can change depending on a state’s assistance policies. This analysis uses data from the CCDF Policies Database, focusing on state policies as of October 1, 2011 (Giannarelli et al. 2012). This analysis looks at a hypothetical family and child care provider, using state-defined maximum reimbursement rates as a proxy for the full price of care. Real-life experiences of families both on and off child care assistance programs vary depending on family characteristics and the prices charged by the child care providers they choose upon leaving the subsidy system. Nevertheless, the analysis shows that many families who become ineligible for child care subsidies due to increased earnings face substantial increases in child care expenses. Subsidized families using center-based care who want to continue using the same care after losing the subsidy would see their expenses more than double in some states. In other states, because copayment amounts are higher, the cliff effect is lower. What Is CCDF, and Who Is Eligible? CCDF provides federal block grant money to the 50 states, five territories, and the District of Columbia in an effort to reduce the cost burden of child care f