The blog of the Urban Institute
April 29, 2021

Expanding Subsidies for Home-Based Child Care Providers Could Aid the Postpandemic Economic Recovery

April 29, 2021

The COVID-19 pandemic has reinforced the importance of child care, particularly home-based child care (HBCC), a sector that has historically had a central but often overlooked role in supporting children and families. The most recent national data (PDF) show more than 1 million paid HBCC providers cared for more than 3 million children from birth to age 5 in 2012. HBCC providers include anyone from legally unlicensed relatives caring for one or two related children, to licensed family child care homes with staff caring for 10 or more children.

For families with infants and toddlers, families working nontraditional schedules, families living in rural areas, families with children with special needs, and other families for whom child care centers are not available or not preferred, HBCC is critically important. During the COVID-19 pandemic, HBCC has become even more essential, as more families have turned to HBCC options, likely because of the closure or reduced services of many child care centers and/or a desire to have their children in smaller settings to reduce health risks.

Despite the importance of HBCC providers, many of these providers and the children they serve do not participate in or benefit from public child care investments, including the Child Care and Development Fund (CCDF), which helps families with low incomes pay for child care. Without CCDF subsidies, HBCC providers have access to fewer financial supports, and the many families who rely on HBCC providers have less access to financial assistance for child care.

These issues are more pressing now, as the child care sector struggles to recover and as women who were forced out of the labor force because of the pandemic seek child care options that allow them to return safely to the workforce. State child care agencies and the federal government can address this gap in support as they consider how to spend the new funds for child care subsidies available through pandemic relief packages. States can dedicate some of these resources to addressing the barriers that HBCC providers face in the subsidy system, creating more access for children and parents to home-based child care and supporting a more robust economic recovery.

HBCC providers face barriers to participation in the subsidy system

Although HBCC providers care for many children in families with low incomes who otherwise would be eligible for CCDF subsidies, a number of barriers limit HBCC provider participation. A recent Urban Institute analysis found that three primary factors shape HBCC participation in the subsidy system:  

  1. the ease or difficulty of the provider approval process,including the steps needed for approval; the health and safety requirements, particularly for those who do not have to meet state licensing requirements (PDF) that vary widely; and the timeliness of being approved
  2. payment amounts and processes, including how much the state will pay HBCC providers, the payment approaches they use, and the logistics and processes involved with getting paid
  3. the extent to which states have implemented family-friendly policies, such as annual redetermination

These factors are further shaped by whether states view HBCC as quality child care and if they have the resources to implement the increased health and safety requirements for license-exempt HBCC providers established in the 2014 reauthorization of CCDF. The recent increased investments in CCDF can begin to address the latter challenge.

How can policymakers help HBCC providers engage with the subsidy system?

State and federal policymakers can support HBCC providers’ participation in the subsidy system. With additional federal funds from COVID-19 relief packages, states now have significant discretion to take steps to support HBCC providers’ ability to serve children receiving subsidies. And the federal government can provide guidance, leadership, and resources to states and can directly change policy parameters to support HBCC participation if new child care legislation is passed.

Some specific steps policymakers could take to support HBCC providers include the following:

  • States and the federal Office of Child Care could engage in a systemwide review of subsidy policies and practices to assess barriers and supports for HBCC participation.
  • Federal pandemic-related child care funds can be used in ways that are appropriate, accessible, and relevant for different kinds of HBCC providers and that address inequities in providers’ access to public resources.
  • States could address hurdles created by health and safety requirements for HBCC providers, particularly those exempt from licensing, by identifying new approaches designed for these settings.
  • States could simplify application and approval processes and ensure these processes are accessible to a range of HBCC providers.
  • States can use CCDF funds to provide supports as HBCC providers navigate approval processes and help them meet health and safety standards.
  • The federal government and states could reevaluate payment rates for non-market-based settings, such as legally unlicensed HBCC, to ensure they are equitable with payments for other settings.
  • States could reexamine HBCC subsidy payment policies to ensure they are accurate, timely, accessible, and responsive.

Equity should be considered with each of these actions to ensure all HBCC providers, including those exempt from licensing, can benefit. And most of these state-level actions would benefit from federal guidance, leadership, and support while implementing new requirements and using federal pandemic relief funds.

To ensure pandemic relief funds help the full range of families with low incomes and support the stabilization of this critical element of the child care sector, the full range of HBCC providers, and the families they serve, must be included in the recovery.


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