HHS named this program the Child Care and Development Fund. In addition to consolidating federal funds, PRWORA significantly changed federal child care policy by giving states maximum flexibility to design child care programs for low-income families. States set maximum reimbursement rates that consist of two parts—the state subsidy paid directly to a provider and the co-payment the family pays to a provider. Most States Reported Considering Market Rate Survey Results, but Also Considered Budgets and Other Factors in Setting Child Care Reimbursement Rates

States used the results of market rate surveys to help set child care reimbursement rates, but also reported considering other factors such as budgets in rate setting. States reported that their market rate survey results primarily included data on providers’ fees from regulated child care center, family home, and group home providers. Conversely, 14 states reported that they did not pay different reimbursement rates to providers based on their location. Budgets are important because they establish a financial framework for developing programs and policy goals. In Selected Communities, Different Subsidies and Co-Payments Resulted in Varied Access to Child Care for Low-Income Families

In the nine communities we visited, we calculated that the maximum reimbursement rates afforded hypothetical 2-person families widely different levels of access to child care providers who accepted the subsidy. Child Care: States Increased Spending on Low-Income Families.
What GAO Found

Federal welfare legislation passed in 1996 placed a greater emphasis on helping low-income families end dependence on government benefits by promoting job preparation and work. To reach this goal, the legislation gave states greater flexibility to design programs that use federal funds to subsidize child care for low-income families. Under the Child Care and Development Fund, this flexibility includes the freedom to largely determine which low-income families are eligible to receive child care subsidies. These maximum rates consist of two parts--a state subsidy and family co-payment. States also establish maximum reimbursement rates for child care. States reported considering market rate survey and budget and policy goals in setting maximum reimbursement rates. All states reported conducting market rate surveys in the past 2 years that obtained data on providers' fees, but 10 states reported that they did not base the reimbursement rates for child care providers on their most recent market rate surveys. In the nine communities visited, GAO calculated that hypothetical families' access to child care centers and family home providers varied widely as a result of the different subsidies and family co-payments established by each state.