4.2 Assess Market Rates and Analyze the Cost of Child Care

To establish subsidy payment rates that ensure equal access, Lead Agencies must collect and analyze statistically valid and reliable data and have the option to conduct either a (1) market rate survey (MRS) reflecting variations in the price to parents of child care services by geographic area, type of provider, and age of child, or (2) an ACF pre-approved alternative methodology, such as a cost estimation model, which estimates the cost of care by incorporating both data and assumptions to estimate what expected costs would be incurred by child care providers and parents under different scenarios. All Lead Agencies must analyze the cost of providing child care through a narrow cost analysis or pre-approved alternative methodology. Prior to conducting the MRS or pre-approved alternative, Lead Agencies must consult with the State Advisory Council on Early Childhood Education and Care (designated or established pursuant to the Head Start Act (42 U.S.C. 9837b(b)(1)(A)(i)) or similar coordinating body, local child care program administrators, local child care resource and referral agencies, and other appropriate entities; and organizations representing child care caregivers, teachers, and directors. Prior to conducting the MRS or pre-approved alternative methodology, Lead Agencies must consult with the State Advisory Council on Early Childhood Education and Care (designated or established pursuant to the Head Start Act (42 U.S.C. 9837b(b)(1)(A)(i)) or similar coordinating body, local child care program administrators, local child care resource and referral agencies, and other appropriate entities; and organizations representing child care caregivers, teachers, and directors. Note: Any Lead Agency considering using an alternative methodology instead of a market rate survey to set payment rates, is required to submit a description of its proposed approach to OCC for pre-approval in advance of developing and conducting the alternative methodology. Advance approval is not required if the Lead Agency plans to implement both an MRS and an alternative methodology to set rates at a percentile of the market rate, but a Lead Agency conducting a limited market rate survey and using it to inform their cost model would need pre-approval for this approach. In its request for ACF pre-approval, a Lead Agency must provide details on the following elements of their proposed alternative methodology: • Overall approach and rationale for using proposed methodology • Description of stakeholder engagement • Data collection timeframe (if applicable) • Description of the data and assumptions included in the methodology, including how these elements will yield valid and reliable results from the model • Description of how the methodology will capture the universe of providers, and reflect variations by provider type, age of children, geographic location, and quality 4.2.1 Completion of the market rate survey or ACF pre-approved alternative methodology Did the Lead Agency conduct a statistically valid and reliable MRS or ACF pre-approved alternative methodology to meet the CCDF requirements to assess child care prices and/or costs and determine payment rates? Check only one based on which methodology was used to determine your payment rates. a. [x] Market rate survey. i. When were the data gathered (provide a date range; for instance, September – December 2023)? July 11, 2022 ￿ October 11, 2022 b. [ ] ACF pre-approved alternative methodology. i. [ ] The alternative methodology was completed. ii. [ ] The alternative methodology is in process. If the alternative methodology was completed: When were the data gathered and when was the study completed? Describe any major differences between the pre-approved methodology and the final methodology used to inform payment rates. Include any major changes to stakeholder engagement, data, assumptions or proposed scenarios. If the alternative methodology is in progress: Provide a status on the alternative methodology and timeline (i.e., dates when the alternative methodology activities will be conducted, any completed steps to date, anticipated date of completion, and expected date new rates will be in effect using the alternative methodology). c. Consultation on data collection methodology. Describe when and how the Lead Agency engaged the following partners and how the consultation informed the development and execution of the MRS or alternative methodology, as appropriate. iii. State Advisory Council or similar coordinating body: OCDEL engaged Dr. Phillip M. Sirinides of Institute of State and Regional Affairs (IRSA) at Pennsylvania State University in Harrisburg to complete Pennsylvania’s 2022 MRS. ISRA presented at a meeting for the Early Learning Council’s (now known as Pennsylvania’s State Advisory Council on Early Childhood Education and Care (SAC)) Equal Access Standing Subcommittee, on May 23, 2022. The presentation included information about child care costs, research, and the upcoming MRS and narrow cost study analysis. Members of the advisory council were provided with a draft of the MRS survey questions and methodology. Feedback, comments, and suggestions were requested to be shared with ISRA by June 3, 2022. The feedback received from the advisory council resulted in several modifications to the draft study protocols. iv. Local child care program administrators: Child care program administrators are represented on the SAC individually as well as by the Executive Directors of the Pennsylvania Child Care Association and the Pennsylvania Association for the Education of Young Children. v. Local child care resource and referral agencies: ELRCs are represented on the SAC. OCDEL worked directly with ELRCs to coordinate communications to child care providers. OCDEL staff worked with the ELRCs to assist providers in understanding the importance of participation and the various methods available to participate in the MRS. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: ISRA participated in a webinar with the Pennsylvania Child Care Association (PACCA) to provide information about the MRS and how members could help spread the word amongst other providers. Pre-survey interviews with child care providers to identify potential barriers to participation in an MRS and to learn more about providers’ preferences in completing the survey. The feedback from these interviews and the pre-survey presentation with the Pennsylvania Early Learning Council Equal Access Standing Subcommittee helped shape the MRS strategy to increase participation from a diverse range of programs. vii. Other. Describe: N/A d. An MRS must be statistically valid and reliable. An MRS can use administrative data, such as child care resource and referral data, if it is representative of the market. Please provide the following information about the market rate survey: i. When was the market rate survey completed? 10/11/2022 ii. What was the time period for collecting the information (e.g., all of the prices in the survey are collected within a three-month time period)? July 11, 2022 ￿ October 11, 2022 iii. Describe how it represented the child care market, including what types of providers were included in the survey: Out of 6,562 providers on the initial survey list developed in June 2022, 184 were no longer operating by the end of the survey period in October 2022. This left 6,378 providers that remained in operation throughout the entire survey period. A total of 4,383 child care providers participated in the 2022 MRS, representing a 68.7% response rate. The key attributes of the providers participating in the 2022 MRS include: provider type, Keystone STARS designation, ELRC region, and whether or not the provider has a CCW agreement. A CCW agreement permits certified provers to serve children enrolled in the CCW subsidy child care program. More than 50% of providers from each of these key attributes participated in the MRS. iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? Surveys were sent to a list of licensed providers from the PELICAN Certification Licensing System. Survey responses were collected and maintained internally by IRSA. v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? Three options were provided for completing the MRS: returning a paper survey by mail (with a pre-paid envelope), completing the survey online using an individualized survey link, or sharing information via telephone. The survey was offered in both English and Spanish to ensure accessibility. During the survey fielding period, ISRA employed a range of strategies to reach nonresponding providers. On July 6, 2022, the first mailing of the MRS was sent to 6,562 providers, followed by a second mailing, on August 17, 2022, to 5,167 providers which had not yet responded. Additionally, on August 23, 2022, an email was sent to 4,901 providers, followed by a second email on September 8, 2022, to 3,610 providers. Approximately 3,000 phone calls were made from September 9 to October 6, 2022, to further engage non-responding providers. On September 21, 2022, a third email was sent to 2,843 providers, and the survey ultimately closed on October 11, 2022. Throughout this period, ISRA offered assistance to providers via a project email address and a toll-free number, providing support to access and complete the survey. OCDEL utilized a robust communications strategy to inform providers of the importance of participating in the MRS. Along with the efforts of ISRA, various partners promoted the survey through multiple channels, including social media releases on Facebook, Twitter, and LinkedIn accounts. The PA Key also posted and shared MRS information on its website, and announcements were sent to subscribers of newsletters such as PA Early Ed News, OCDEL Early Childhood Education Recaps, and Certification Services News. Community partners, such as PACCA, Early Learning Resource Centers, Child Care Professionals Network, First Up: Champions for Early Education, and Trying Together, contributed to communication efforts. Additionally, ISRA presented at a webinar entitled ￿2022 Market Rate Survey and YOU,￿ hosted by PACCA on August 18, 2022. These efforts aimed to maximize participation and ensure that the resulting data accurately represented variations by geographic area, provider type, care level, type of care, and quality rating in the Pennsylvania child care market. To incentivize participation, an optional drawing for one of one hundred $100.00 gift cards was offered to providers who completed the survey. Those who responded by September 1, 2022, were eligible to triple their chances to win. Winners were selected at the conclusion of the survey in October, and ISRA distributed 100 gift cards in early November 2022. vi. What is the percent of licensed or regulated child care centers responding to the survey? 70.40 vii. What is the percent of licensed or regulated family child care homes responding to the survey? 63.60 viii. Describe if the survey conducted in any languages other than English: The survey was offered in both English and Spanish. ix. Describe if data were analyzed in a manner to determine price of care per child: No. The reported private pay tuition rates were compared to the 570 unique MCCAs (base subsidy rates) to determine which percentile each MCCA met. x. Describe if data were analyzed from a sample of providers and if so, how the sample was weighted: No e. Price variations reflected. The market rate survey data or ACF pre-approved alternative methodology data must reflect variations in child care prices or cost of child care services in specific categories. i. Describe how the market rate survey or pre-approved alternative methodology reflected variation in geographic area (e.g., county, region, urban, rural). Include information on whether parts of the State or Territory were not represented by respondents and include information on how prices or costs could be linked to local geographic areas. The regionally based rate model includes 570 rates representing 19 regions that encompass all 67 counties. Rates are developed by region, provider type and care level/age of child for both full and part time care. More than 50% of providers from each of the 19 ELRC regions, encompassing all 67 counties in Pennsylvania, participated in the MRS. ii. Describe how the market rate survey or pre-approved alternative methodology reflected variation in type of provider (e.g., licensed providers, license-exempt providers, center-based providers, family child care home providers, home based providers). The regionally based rate model includes 570 rates representing 19 regions that encompass all 67 counties. Rates are developed by region, provider type and care level/age of child for both full and part time care. A total of 4,383 child care providers participated in the 2022 MRS, representing a 68.7% response rate - 70.4% representing 3,268 MRS responses from a possible 4,645 child care centers and 64.3% representing 1,115 MRS responses from a possible 1,733 group or family child care homes. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): The regionally based rate model includes 570 rates representing 19 regions that encompass all 67 counties. Rates are developed by region, provider type and care level/age of child for both full and part time care. The survey asked respondents to provide the highest rate charged for each care level for both full and part time care. Provider care levels were defined as infant, (birth to 12 months), younger toddler (13 to 24 months), older toddler (25 to 36 months), preschool (37 months to entering kindergarten), and school-age (kindergarten and higher). In addition to the typical MRS, the study also included a narrow cost analysis which provides a comprehensive view of the provider expenses that contribute to the total cost of care. iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: Responses represented more than 63% of providers from each Keystone STAR level. The private pay rates collected in the 2022 MRS were also analyzed based on Keystone STAR designation. Providers receiving a STAR 2, 3, and 4 designation meet higher standards for staff qualifications, quality of care, and the learning environment. The tuition rates analyzed did not include tiered reimbursement payments, which are an add-on to the MCCAs based on STAR designation. A linear regression analysis showed that, after controlling for ELRC region, provider type, care level, and care length, providers with higher Keystone STAR designations do charge more than comparable providers with lower designation across all care levels and types of care, which is consistent with expectations. The analysis found that STAR 2 providers charge an average of $1.34 more per day than STAR 1 providers. STAR 3 providers charge an average of $3.17 more per day than STAR 1 providers, while STAR 4 providers charge an average of $7.26 more per day than STAR 1 providers. 4.2.2 Cost analysis If a Lead Agency does not complete a cost-based pre-approved alternative methodology, they must analyze the cost of providing child care services through a narrow cost analysis. A narrow cost analysis is a study of what it costs providers to deliver child care at two or more levels of quality: (1) a base level of quality that meets health, safety, staffing, and quality requirements, and (2) one or more higher levels of quality as defined by the Lead Agency. The narrow cost analysis must estimate costs by levels of quality; include relevant variation by provider type, child’s age, or location; and analyze the gaps between estimated costs and payment rates to inform payment rate setting. Lead agencies are not required to complete a separate narrow cost analysis if their pre-approved alternative methodology addresses all of the components required in the narrow cost analysis. Describe how the Lead Agency analyzed the cost of child care through a narrow cost analysis or pre-approved alternative methodology for the FFY 2025–2027 CCDF Plan, including: a. How did the Lead Agency conduct a narrow cost analysis (e.g., a cost model, a cost study, existing data or data from the Provider Cost of Quality Calculator)? OCDEL engaged Dr. Phillip M. Sirinides of Institute of State and Regional Affairs (IRSA) at Pennsylvania State University in Harrisburg to complete a study aimed at understanding the cost of providing child care services in Pennsylvania. The ingredients method was utilized to calculate the economic cost of providing child care. Developed by economists to assess the cost- effectiveness of education interventions, the process entails collecting detailed data on the resources used to deliver an intervention or educational program, and then applying market prices to those resources. The types of resources incorporated into an ingredient analysis typically include personnel, facilities, equipment, consumable supplies, and other services. During the summer and fall of 2022, the IRSA research team conducted 60 site visits of child care providers representing a diverse mix of provider characteristics and locations and documented the resources (i.e., ingredients) used to deliver services. During the visits, the researchers interviewed key personnel, such as directors, regional supervisors, and owner/operators, and took photographs of physical resources during tours of each facility. In total, 1,207 different ingredients were identified during data collection. After each visit, the ingredients and ingredient quantities identified were entered into a database and assigned a state representative price. The median cost of care amongst STAR 1 providers (who are only eligible for the base subsidy rate without add-ons for quality) that participated in the study is $320 per week. The increased subsidy base rate for a full-time infant in Pennsylvania’s most populus county (i.e. Philadelphia) is $59.58 per day or $297.90 per week. This indicates a potential gap of $22.10. It is important to note that other variables such as provider type, quality rating and geographic location impact both cost and subsidy rate. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? The analysis reveals notable findings regarding the range of costs across different attributes. Specifically, the range of median costs for provider subgroups in 2022 has decreased compared to 2019. In the previous 2019 Narrow Cost Analysis, the median ranges for providers by STAR designation varied from 18% below to 51% above the median. However, in the current 2022 study, the range has narrowed from 9% below to 16% above the median. A similar reduction in the range of costs is observed for different provider types. In 2019, the range extended from 23% below to 32% above the median, whereas the range now spans from 3% below to 10% above the median. The closer range of median costs in provider subgroups may be explained by an improved study sample, a genuine contraction in cost differences, or a combination of both. Findings suggest that meaningful differences in costs by provider attribute are less prominent. Furthermore, the slight differences in cost estimates between provider types or STAR designation were not statistically significant. The analysis indicates that larger Child Care Centers tend to have costs below the median, while medium and small centers (including Group Child Care Homes) have higher costs. Family Child Care Homes also tend to incur slightly higher costs compared to the median. Notably, large centers have experienced the greatest increase in costs since 2019, followed by medium sized centers. On the other hand, Group Child Care Homes and smaller centers have remained effectively unchanged and remain 10% above the state median. This indicates that smaller Center operations historically have high costs that have remained relatively stable. Conversely, larger centers continue to operate with relatively lower costs per child but have experienced a recent dramatic increase in operating expenses. c. What assumptions and data did the Lead Agency use to determine the cost of care at the base level of quality (e.g., ratios, group size, staff compensations, staff training, etc.)? The research team conducted site visits of child care providers and documented the resources (i.e., ingredients) used to deliver services. The duration of the visits varied from two to six hours, depending on the program size. During the visits, the researchers interviewed key personnel, such as directors, regional supervisors, and owner/operators, and took photographs of physical resources during tours of each facility. After each visit, the ingredients and ingredient quantities identified were entered into a database. The objective of using these methods was to gain insight into the economic value of resources utilized in delivering child care services, as two providers may pay different prices or use different means of payment for resources with the same economic value. The methodology does not reduce costs due to donations or efficiencies, nor does it increase costs above market value due to inefficiencies or premium prices. The child-centric findings represent the expected cost to replicate the service if all expenses were paid at statewide-representative market prices. However, the expected cost does not necessarily reflect the actual funds required, as providers may find different avenues to offer the same value at a lower price, such as through donations, volunteer time, or shared professional services. To ensure the analytic sample was balanced and without redundancy, 47 profiles were strategically chosen to complement the original 13 providers. The selection process utilized PROC OPTEX in SAS 9.1, employing a distance-based optimality criteria to expand and model design points. This approach aimed to distribute the 60 profiles evenly across provider attributes. For instance, ￿Profile 27￿ was a STAR 2 large Child Care Center in Region 9, while ￿Profile 42￿ was a STAR 1 Family Child Care Home in Region 15 that did participate in CCW. This method achieved maximum coverage across all combinations of provider characteristics, facilitating planned subgroup analyses. d. How does the Lead Agency define higher quality and what assumptions and data did the Lead Agency use to determine cost at higher levels of quality (e.g., ratio, group size, staffing levels, staff compensation, professional development requirements)? A Lead Agency can use a quality improvement system or other system of quality indicators (e.g., accreditation, pre-Kindergarten standards, Head Start Program Performance Standards, or State-defined quality measures). The study incorporates providers from all four Keystone STARS designations. All providers are required to meet minimum health and safety standards (i.e., STAR 1). STAR 2, 3, and 4 providers are also required to meet specific indicators to achieve increasing levels of quality. STAR 2, 3, and 4 providers have higher staff qualification requirements and programs must implement additional quality practices in standard areas of Early Childhood Programs, Professional Development and Staff Qualifications, Leadership and Management, and Relationships with Families and Communities. e. What is the gap between cost and price, and how did the Lead Agency consider this while setting payment rates? Did the Lead Agency target any rate increases where gaps were the largest or develop any long-term plans to increase rates based on this information? Overall, the study finds the median cost of child care per child per week to be $339, varying by provider type and STAR designation. These results reflect a 16.9% increase since 2019, although the comparative range of median costs for provider subgroups has decreased. Findings suggest several possible reasons for provider subgroups’ narrower range of median costs. First, an improved study sample that is larger and more representative could better capture the range of costs across different provider attributes, resulting in a more accurate representation. Second, a genuine contraction in cost differences may have occurred, due to factors like economies of scale or changes in resource allocation becoming more consistent across provider types and STAR designation. Additionally, providers may have adapted their practices during and after the COVID-19 pandemic, leading to cost convergence. MCCA base subsidy rates were previously set to meet the 60th percentile based on the 2019 MRS. Upon release of the 2022 MRS, base subsidy rates were increased effective March 1, 2023, to maintain the 60th percentile. It is important to note that the percentile rank calculated in the MRS does not factor in Keystone STARS quality add-ons amounts. The 2024-25 Executive Budget proposal recommends increasing the MCCA base subsidy rates to the 75th percentile based on the 2022 MRS. 4.2.3 Publicly available report on the cost and price of child care The Lead Agency must prepare a detailed report containing the results of the MRS or ACF pre- approved alternative methodology and include the Narrow Cost Analysis if an ACF pre-approved alternative methodology was not conducted. The Lead Agency must make this report widely available no later than 30 days after completion of the report, including posting the results on the Lead Agency website. The Lead Agency must describe in the detailed report how the Lead Agency took into consideration the views and comments of the public or stakeholders prior to conducting the MRS or ACF pre-approved alternative methodology. a. Describe how the Lead Agency made the results of the market rate survey or ACF pre-approved alternative methodology report widely available to the public by responding to the questions below. i. Provide the date the report was completed: 6/15/2023 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 6/15/2023 iii. Provide a link to the website where the report is posted and describe any other strategies the Lead Agency uses to make the detailed report widely available: A summary report was released in December 2022. Rates were increased in March 2023 based upon findings in the summary report. The final report, including the Narrow Cost Analysis, was completed and published in June 2023. The report - titled A Closer Look at the Market Rate and Cost of Care in Pennsylvania, 2022 Child Care Market Rate Survey Final Report ￿ is available at: https://www.dhs.pa.gov/Services/Children/Documents/Child%20Care%20Early%2 0Learning/2022_MRS_Summary_Report_FINAL.pdf OCDEL_MRS_NCS_ComprehensiveReport_FINAL.pdf (pa.gov) iv. Describe how the Lead Agency considered partner views and comments in the detailed report. Responses should include which partners were engaged and how partner input influenced the market rate survey or alternative methodology: ISRA conducted a series of phone interviews with child care providers who did not participate in Pennsylvania’s previous 2019 MRS. The aim was to identify potential barriers to participation and to learn about providers’ preferences in completing a survey. ISRA conducted twenty-seven phone interviews in March 2022, including a range of provider types, geographic regions, Keystone STAR designation, and licensed capacities. The feedback from providers shaped the methods of communication and outreach. Three options were provided for completing the MRS: returning a paper survey by mail with a pre-paid envelope, completing the survey online using an individualized survey link, or sharing information via telephone. The survey was offered in both English and Spanish to ensure accessibility. ISRA presented at a Pennsylvania State Advisory Council (SAC) meeting, formerly the Early Learning Council, on May 23, 2022. The presentation included information about child care costs, research, and the upcoming MRS and narrow cost study analysis. Members of the advisory council were provided with a draft of the MRS survey questions and methodology. The feedback received from the advisory council resulted in several modifications to the draft study protocols. One member suggested ISRA proactively contact providers via telephone to increase participation instead of relying on reactionary responses from an invitation. The project team emphasized calling all providers who had not yet responded to the MRS invitation near the end of the survey period to ensure an adequate and equitable opportunity to participate. Another member suggested the importance of reaching out to providers directly and coordinating with various advocacy groups throughout the commonwealth. As a result, ISRA participated in a webinar with the Pennsylvania Child Care Association (PACCA) to provide information about the MRS and how members could help spread the word amongst other providers. With regard to the MRS structure, several modifications were made. Initially, providers were asked to either enter their current private pay tuition rates or indicate that their tuition rates were up to date in Provider Self Service (PSS). However, several members voiced concerns about these instructions, indicating that it may be better to have respondents enter their tuition rates to ensure the data was current and because some may not readily know if their rates are up to date in PSS (e.g., if a facility recently hired a new director). Therefore, the question about providers’ rates in PSS was eliminated, and the MRS asked all providers to enter their current private pay tuition rates. In addition, several suggestions about answer choices (e.g., adding ￿Staff discount￿ to the list of tuition reductions) and question-wording (e.g., adding more explicit definitions of full-time and part-time enrollment in the tuition rate question) were also incorporated into the final survey draft. Findings from the MRS and preliminary results from the Narrow Cost Analysis were presented to the Pennsylvania State Advisory Council (SAC) on March 15, 2023. This presentation sought input from council members after the meeting, although no subsequent feedback was received.