Ohio ranks last for child care reimbursement formula. Federal government orders state to raise its rates

CLEVELAND, Ohio – Ohio, one of only a handful of states that reimburses child care providers at the 25th percentile of the local market rate, has been ordered by the federal government to do better, regardless of whether new national standards being proposed are enacted.

Being at the 25th percentile means that lower-income families qualifying for the program have access to the least expensive 25% of child care centers in their area. No states are lower. Parents are free to use high-cost centers, paying the difference, but these vouchers are for families living at or near 145% of the poverty level. And child care centers are not required to accept subsidies.

Ohio, under federal order, must increase its rates to at least the 50th percentile by the end of 2024, or incur a penalty.

Separately, the U.S. Department of Health and Human Services announced last week that it is considering policy changes that increase the national standard to the 75th percentile, and make other changes aimed at lowering child care costs, such as paying based on enrollment, rather than attendance.

Why does this matter?

Jamie O’Leary, associate director of policy for the Crane Center and Schoenbaum Family Center at Ohio State University, said that while percentiles can be confusing, such a change would be of significant importance to lower-income families seeking child care so they can afford to go to work.

“The feds have said the 75th percentile provides ‘equal access’ for families. This means that for families using public child care subsidies, three out of four options in the child care market should be affordable or accessible to them,” O’Leary said.

Regardless of whether the new rules go through, the federal government under an order issued earlier this summer is still requiring Ohio to increase access from the 25th percentile to the 50th percentile.

“ODJFS is developing a plan to bring the state into compliance,” said a representative from the Ohio Department of Job and Family Services. “ODJFS has been in continuous contact with the U.S. Department of Health and Human Services about a non-compliance notice.”

Officials in Alaska, one of the four other states previously reimbursing based on the 25th percentile, said the state already has changed to the 75th percentile – the same standard now being proposed nationally.

In our Rethinking Child Care series, cleveland.com and the Plain Dealer in 2023 examine the struggle to find quality, affordable child care and propose solutions to share families’ burdens and help the economy. Follow the coverage at this link.

Ohio, Alaska, Colorado and Georgia were at the bottom nationally in using the 25th percentile in 2022, the time of the last market survey. On the high end, at the 85th percentile, were Louisiana and Washington. Eighteen states were at least the 75th percentile.

Some mobile users may need to use this link to see the chart above on state child care percentile rates.

Although Ohio has one of the lowest percentiles, it does not have the lowest base rate by dollar amount, which goes to Mississippi at $110.77 per week, according to the Center of American Progress. Ohio’s base rate is $146.25, though what is paid in Cuyahoga County under the program is nearly double that.

Alaska, Colorado, Georgia and Ohio have higher dollar amounts because their markets are more expensive and have a higher cost of living, so their rates offer fewer options.

Base rates are the minimum amount a child care center will be paid, higher for centers meeting certain criteria, including participating in the state’s Step Up to Quality five-star program, awarded for achieving benchmarks.

“If you’re working for the state, you’ll be quick to point out that if you are at Step Up to Quality, you do get more money,” says O’Leary. “They’re trying to incentivize higher quality providers, but the feds have said your base rate needs to be higher, especially when it comes to infants and toddlers.”

To make child care facilities affordable, states reimburse some of the cost families must pay. How much a child care provider receives from a state is based on location, the quality level of the provider, and the age of the children that attend.

The most generous subsidies is for infant, center-based care in Washington, Louisiana and West Virginia, at the 85th percentile.

Currently, the base child care center rate is $159.58 per full-time infant in Fulton County. In Cuyahoga County, the same parameter would yield $245. The rate is reassessed every two to three years, according to market rates. In both cases, rates can be higher based on quality ratings.

But not every child care center opts into publicly funded child care.

“Some providers don’t accept PFCC simply because the payments from the state aren’t high enough to cover their costs,” says O’Leary.

Market rate surveys are done approximately every two years to help state governments establish the current market rates for child care programs across Ohio by provider type, child age group, and region.

Market rate surveys and percentiles are related because the budget for child care programs is determined by the funds they get from the state through reimbursements determined by the survey. This budget has to cover materials, food, teacher wages, building expenses, administration and other costs, even though the reimbursement rates only calculate the cost per child.

There is another option some advocates are pushing for – basing rates on estimated costs rather than what is being charged, a method called cost estimation modeling.

“Imagine an Excel file that you would use to budget,” said O’Leary. You’re putting in the cost of your building rent, what it takes to pay your ten teachers based on today’s market and the food, which has gone up due to inflation. So when you go to sit down, you get your budget. You wouldn’t just put in an outdated figure from three years ago.”

New Mexico, Virgina and the District of Columbia have made the switch. Approval is necessary from the Federal Administration for Children and Families.

While cost modeling does not address the shortage of child care money or the need for public investment, it does improve the distribution of funds between existing and future needs more at the moment.

New Mexico notes the flexibility: “The cost model can be modified to account for additional costs that may arise due to the ongoing COVID-19 pandemic, such as the cost of substitute time and paid sick leave due to quarantine and testing requirements, personal protective equipment and cleaning costs, or lower group size requirements.”

Cost analysis is already required by states when they have to redo their market rate survey every three years for their new Child Care and Development Fund, and a number of states have already used a variation of cost modeling to meet that requirement.

Zachary Smith is the data reporter for cleveland.com and The Plain Dealer. He can be reached at zsmith@cleveland.com. See previous stories at this link.