Understanding how to support and expand the supply of child care is an increasingly urgent concern. State policymakers are looking for ways to expand the supply of quality care and care for specific underserved populations such as infants and toddlers, children needing care during nontraditional hours, and children with disabilities.

This report explores the use of Child Care and Development Fund child care subsidy payment rate policies and practices to try to expand the supply of specific types of child care that are in short supply and focuses on one of the most common policy levers—increasing the per child subsidy payment (also known as “differential” or “tiered” rates) paid to providers for children receiving these types of care. Although differential rates are used to support a variety of goals, this report specifically examines the following question: What is known about using subsidy rate policies and practices to expand the overall supply of priority child care options, either by incentivizing providers to start delivering the priority service or by incentivizing providers who already deliver these services to expand their efforts?

Based on a review of research and interviews with policy experts, child care providers, and state administrators, this report suggests that differential rate policies are unlikely to incentivize expansions in supply unless they are part of a more holistic strategy that addresses the range of financial and nonfinancial costs providers face.