Massachusetts Child Care Market Price Survey - 2010

Response to Questions on EEC Rate Reform

March - 2011


Massachusetts Market Price Survey

The Committee’s questions regarding rate reform included a mix of questions that applied directly to the market price survey and questions that fell outside of the purview of the survey. We have attempted to answer all questions that relate directly to the survey. In addition, we also have provided some thoughts, key considerations and possible sources of information for some of the other questions as well.

Key Themes

o The market-based approach to setting child care reimbursements may have limitations with respect to ensuring access to care that meets desired levels of quality

o Relying on financial incentives that are entirely rate-based and portable in nature may have some limitations in helping programs strengthen quality

o Other states that have been early developers of QRIS have combined tiered rate-based add-ons with direct, grant-based assistance to programs and practitioners to help improve quality

o Labor costs are by far the most significant component of a program’s total cost structure and research shows that practitioner compensation is directly associated with program quality

Rate Reform Research Questions

(1) What is the most effective way to set rates as measured against the goal of ensuring access to high quality early education and care? At least 50% of median market rate? At least 75% of market rate? Based on labor costs affiliated with high quality teaching? Based on what programs have made work in various markets?

The Office of Child Care requires states to conduct a child care market price survey every other year to help ensure that families, at least theoretically, have equal access to find and afford care. In addition, federal Child Care and Development Fund regulations encourage states to set rates at the 75th percentile of market prices. This is viewed as a benchmark, rather than a requirement. While market price surveys are intended to gauge access to care, they are generally not designed to take quality factors into consideration. One notable exception is North Carolina, where the state collects and analyzes price data for programs at different levels in the state’s five-star Quality Rating and Improvement System (QRIS).[1]

Providers often refer to the disparity between the price and the true cost of care. The 2006 Massachusetts Provider Cost Study found this to be true for programs serving infants in general, and for those serving toddlers and preschool children in Boston.[2] In low-income markets in particular, the prevailing prices paid in a community may not support the basic structural features that underpin high-quality care – e.g., compensation required to attract and retain high-quality professionals. In some low-income markets, the state reimbursement rate may equal or exceed the 75th price percentile but still not provide funding adequate to support the features of high-quality care. In such markets, the state subsidy would provide families with access to 75 percent of programs, but the overall quality of programs in the market may be constrained by the market’s relatively low-prices. So pegging reimbursement rates to the 50th or 75th percentile alone may not be adequate to ensure access to high-quality in all circumstances.

As the state moves forward with full implementation of the Quality Rating and Improvement System (QRIS) and considers options for rate reform, EEC may want to consider the financial incentive strategies used in other states that were early developers of QRIS – e.g., Pennsylvania, North Carolina, Ohio – where tiered rate reimbursements are combined with direct assistance to programs and practitioners. These states offer direct assistance in the form of quality improvement grants, merit award grants, wage supplements and/or practitioner scholarships to ensure that all programs have an adequate base of funding to support high-quality care, without increasing the cost to families and without limiting family choices.

The Compendium of Quality Rating Systems and Evaluations found that of the 26 states/counties with QRIS in 2009, 17 included tiered rate reimbursements. The tiered rate systems had differentials that ranged from 3% to 5% above the base rate at the lower quality levels and 15% to 25% at the higher quality levels. In addition, 15 of the states offer quality improvement grants to help programs ascend to higher levels of quality and nine also offer quality award grants on a one-time or on-going basis. The QRIS in Pennsylvania and Ohio offer substantial awards to programs that serve high densities of vulnerable or at-risk children. In addition to a base rate provided for being at a particular quality level, Ohio offers a dollar amount per subsidized child served that is factored into an annual payment for a program. Pennsylvania offers programs a tiered rate add-on (ranging from $.70 to $3.00 per child per day) in addition to quality merit awards that vary based on program size, the density of vulnerable or at-risk children served and program type. These incentives are also accompanied by a full complement of other program and practitioner incentives – e.g., wage and retention incentives.[3]

If EEC has not already finalized the total funding that programs could be eligible to receive at different QRIS quality levels – through grants and/or tiered rate add-ons - cost modeling might be a useful tool to help establish financial incentives based on the standards established for each quality level.

While the data from the market price survey may not be helpful in establishing a specific funding level to ensure desired levels of quality, data from the 2008 and 2010 market price surveys could be useful to EEC in other ways. First, the data could help EEC identify local markets in which prices appear to be depressed. Second, the data could allow EEC to identify markets in which prices are so high that, even with EEC assistance, low-income families may face a price-based barrier to access.

(2) For the purposes of conducting a market rate survey, how do you define the market?

For research purposes, markets are defined both in terms of the services provided and in terms of geography. The 2010 market price survey defines the early education and out-of-school-time market in the same way as previous surveys in Massachusetts. The state has historically treated center-based care, out-of-school-time care and family child care as separate markets within each of the state’s six geographic rate regions. The survey includes only licensed programs in the “priced market” and excludes programs that do not charge fees or in which all children were funded through some form of subsidy – e.g., most Head Start programs. Finally, this year’s survey focuses, as have previous surveys, on the market for full-day and full-week programs.

Economic research views early education and out-of-school-time programs as offering differentiated services, with programs offering similar services competing against each other. The research considers child care centers, family child care providers, out-of-school-time programs, public preschool programs and Head Start programs as offering different services with different markets. The latter two program types are considered to be in separate markets, as compared to centers, because they generally operate only on a part-day, part-year basis, and receive most of their funding from public sources.[4]

Geographically, early education and out-of-school-time markets tend to be small and localized because parents overwhelmingly prefer to have children cared for in their own residential neighborhoods.[5] Yet, states use administrative boundaries – e.g., cities, towns and counties - in administering subsidy policy and conducting market price surveys, despite the conclusions of experts that such boundaries do not accurately capture geographic price areas.[6] States may use administrative boundaries for political and practical reasons – e.g., they align with existing operating systems, existing subsidy policies, existing datasets, etc.

While the 2010 Market Price Survey is based on EEC’s existing six rate regions, the research team is preparing a companion analysis that will show child care prices at the zip code level, using a combination of data collected during this year’s survey and zip-code level data collected during the 2008 survey. This analysis will provide EEC with an analysis of the degree to which child care prices vary within the existing EEC rate regions and allow the agency to diagnose potential barriers that families may face in accessing high-quality care – e.g., areas where prevailing prices may be too low to consistently support desired levels of quality and areas where high prices may create a barrier to access for low-income families. This analysis would also allow EEC to explore the creation of an alternative to the existing geographic boundaries that are used in rate setting.

(3) How do you treat localities in which EEC is the majority purchaser of child care and thus depresses market rates?

In some low-income markets, EEC may be the majority purchaser of child care. In those markets, the EEC rate may be at or above the 75th price percentile for that market. While the EEC rate in this instance may meet the federal access benchmark, it still may not provide funding adequate to support the desired features of high-quality care. The state subsidy would provide families in that market with access to 75 percent of programs, but access to high-quality care may be constrained by the market’s low-prices.

This year’s market price survey, as in previous years, analyzes prices within EEC’s six administrative rate regions and does not analyze or report on prices at the local level. However, if EEC is interested in identifying areas in which prices may be depressed, the companion analysis mentioned in Question Two will include zip code level data for all regions of the state to help EEC identify areas in which market prices are relatively low and possibly not adequate to support desired levels of quality.

(4) What is the relevant comparative labor pool for early educators? How much should a BA credentialed teacher make?

Depending on how one defines the labor pool, existing federal data sources have definitional and coverage limitations. Estimates provided by the Bureau of Labor Statistics, for example, include two categories of the early education and school-age care workforce: preschool teachers and child care workers. The data for preschool teachers includes only teachers who work in school-based programs and excludes Head Start teachers or teachers in community-based preschools. The data for child care workers includes data on community-based programs but does not include data on home-based family child care providers.[7]

(5) If the state is expected to purchase high quality ECE for children, what are current wages relative to the average wage of a BA holder in each market region? What rates would be necessary to enable programs to match the average BA-wage for at least one teacher per classroom?

While the 2010 Market Price Survey does not analyze wage or other workforce data, the research team is reviewing the Professional Qualifications Registry to determine whether the current data could be used to estimate average wages for teachers and other program staff in different areas of the state. If the data are sufficient, the research team may also be able to analyze how wages vary across programs at different prices levels in the child care market.

The team is still reviewing the data to determine whether or not they are sufficiently complete, consistent and current enough to yield reliable estimates. If administrative data from the registry are not currently useable, EEC could conduct an outreach campaign to encourage practitioners to voluntarily enter their data into the registry as a way of boosting the level of data available for study. Alternatively, EEC could conduct a workforce survey or a targeted compensation survey to collect the data required to develop wage estimates. The forthcoming statewide needs assessment might also provide another opportunity to assess workforce features, including compensation.

Using the above data and other administrative data, EEC could develop a cost model to estimate the rate required to support different quality objectives – e.g., one BA teacher per classroom – in different parts of the state. EEC could compare these rates to existing prices and develop an affordability index based on family income. Alternatively, EEC could use the results of the analysis to inform the development of policy interventions that provide direct assistance to programs and/or practitioners in the form of wage supplements and retention bonuses similar to those used in other states.

(6) How do these projected rates compare as a percentage of the median household income in families with children under the age of 6 residing in the market region?

See above response.

(7) What activities should be included in rates? Alternatively, what proportion of rates is driven by labor costs?

Massachusetts has historically collected data only on the base price for early education and out-of-school-time services when conducting market price surveys. This year’s survey, as with previous price surveys, excluded fees above the base price of care - e.g., fees for transportation or activities.

As for rates and labor costs, EEC has not used labor costs as a factor in setting rates. However, with respect to the cost of care, research has shown that labor costs tend to be by far the most significant component of a program’s cost structure. A study conducted by the National Economic Development and Law Center in 2004 found that labor accounts for 72% of expenditures in early education and care centers in Massachusetts.[8] The Massachusetts Provider Cost Study, conducted in 2006, similarly found that labor costs accounted for ____ percent of an infant-toddler program’s total cost and ___ percent of pre-school program’s total cost.[9] However, the study’s findings are not based on a statistically representative sample of programs in all regions for all types of care.