In order to provide stable funding and encourage more child care providers to participate in the subsidy program, provider payment practices should reflect the generally accepted practices of providers who care for children not receiving subsidies. In many instances, subsidy payments are unpredictable and are based on the attendance of individual children, meaning that providers cannot rely on stable assistance. When providers do not have stable funding sources, they cannot commit to hiring highly trained staff and are often unable to provide staff training and professional development opportunities. All of these practices are contrary to the CCDF purposes of delivering high-quality, coordinated early childhood care and education services to maximize parents’ options and increase the number and percentage of low-income children in high-quality child care settings.

Generally accepted payment practices are practices that align with the private-paying child care market in order to encourage providers to accept children receiving subsidies and enable families to retain child care services. The CCDF final rule requires the following practices (unless the Lead Agency provides evidence that they are not generally accepted in the state or service area): 

Under the final rule, states must also do the following:

The Act requires Lead Agencies to, to the extent practicable, implement enrollment and eligibility policies that support the fixed costs of providing child care services by delinking provider payment rates from an eligible child’s occasional absences because of holidays or unforeseen circumstances such as illness. Additionally, paying for days when children are occasionally absent helps promote continuity of care by allowing providers to retain children’s slots without incurring a financial loss. Child care programs have fixed costs (staff, facilities, and the like) that must be paid regardless of whether a child is present on a particular day. Private-paying parents generally pay for an entire period (for example, a week or month) even if their children are out sick within that period.In accordance with this provision, the final rule requires Lead Agencies to adopt one of the following options:

• Pay based on a child’s enrollment rather than attendance
• Provide full payment if a child attends at least 85 percent of the authorized time
• Provide full payment if a child is absent for 5 or fewer days in a month
• An alternative approach for which the Lead Agency provides a justification in its Plan

In an effort to support parental choice and equal access to the full range of child care options, Lead Agencies may choose the option to allow providers to charge families additional amounts above the required copayment in instances where the provider’s price exceeds the subsidy payment. If the Lead Agency elects this option in its payment practices, the CCDF Plan must address the following:

• Provide the rationale to allow providers to charge families additional amounts above the required copayment, including demonstrating how the policy promotes affordability and access for families.
• Provide data (including data on the size and frequency of such amounts) on the extent to which CCDF providers charge additional amounts to families.
• Describe the analysis of the interaction between the additional amounts charged to families with the required family copayment and the ability of current subsidy payment rates to provide access to care without additional fees.

Timely Payments

Finally, the CCDBG Act requires timely payments. Under the final rule, Lead Agencies must ensure timely provider payments by either paying prospectively before delivery of services or paying within no more than 21 calendar days of the receipt of a complete invoice for services.

As a way of ensuring that payment practices are fair to providers and support high-quality services, states should examine their administrative mechanisms. A few approaches to consider are establishing a timeframe for issuing payments, using administrative data to track progress made in increasing or maintaining timeliness and seeking input from providers on ways to improve payment practices. The following administrative improvements are examples of strategies states have implemented to improve payment practices:

• Direct deposit
• Online training for providers for electronic voucher payment
• Provider self-service components in an automated system for children authorized into their care
• Web-based electronic attendance and billing systems

[1] CCDBG Act of 2014 658E(c)(2)(S), 658E(c)(4)(B)(iv); Child Care and Development Fund, 45 C.F.R. § 98.45(l) (2016).

[2] Ibid.