State Innovations in Child Welfare Financing. Flexible Funding


Unlike categorical funding that requires providers to use child welfare dollars to deliver specific services in particular treatment settings, flexible funding gives contractors freedom to deliver a wider range of services and move children more freely between treatment settings. With flexible funding, instead of applying a limited set of categorical services to every case, contractors can develop an individualized treatment plan for each child. Hence, not every child receives a set of expensive services when more limited services may meet the individual child’s needs. Also, since flexible dollars follow the child rather than the service, contractors can more easily shift the child between service settings. For example, contractors may decide to deliver intensive in-home services instead of placing a child in an expensive residential treatment setting. Alternatively, the child may be placed for a short time in residential treatment but then be quickly moved into a community setting with intensive services.

Among interviewed contractors, flexible funding and the individualized treatment that it makes possible was one of the more popular features of the initiatives. From the contractors’ perspective, flexible funding and individualized treatment are necessary conditions for making the best treatment decisions. But in managed care, fiscal constraint is also intended to influence contractors’ decisions. When fiscal constraint enters into treatment decisions, contractors may, perhaps unconsciously, use individualized treatment planning as a tool to manage their budgets.

Although most contractors reported that their clients’ essential service needs are usually met, other comments they made reveal an apparent conflict between treatment and fiscal considerations. For instance, one lead agency reported that at the start of the initiative, its strategy had been to provide intensive community-based services at the beginning of a case to avoid placing children in higher levels of care. However, some children ultimately entered residential treatment. Consequently, the lead agency incurred losses. From this experience, the lead agency “learned to hold back on up-front services in case a child needed residential treatment later in the case.” Another contractor said that it could work within its budget only if cases are triaged as the agency approaches its budget limit. Other contractors told us that although they don’t require case managers to work within a set case budget, if the agency is “headed for financial trouble, that [information] is shared with workers.” These contractors’ comments suggest that treatment decisions depend not only on individual service needs but also on a contractor’s financial status at the time a decision is made. Hence, a child entering into care at the beginning of a budget cycle may have a different treatment plan than a child with similar needs but who enters care when the budget is closer to depletion.

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