State Innovations in Child Welfare Financing. Gaining Flexibility


How can states do things differently to obtain better results?

Some believe that there are major constraints with current federal title IV-E funding that make it difficult for states to experiment with innovative reforms and achieve better outcomes or improved system functioning. For example, title IV-E is limited in terms of what it will cover; it reimburses for out-of-home care and not for prevention or wraparound services that may eliminate the need for costly out-of-home care. It also reimburses only for services already delivered, which can create cash-flow problems for states that want to try prospective payment mechanisms. The results are a fiscal incentive to place children in foster care and keep them there in order to have a steady federal funding stream and little incentive to put resources into supporting families to keep children at home or “stepping down” children into less intensive (and lower reimbursed) levels of care, when necessary supports would not be reimbursed.

Most of the initiatives found ways to incorporate flexibility in the use of resources. One way to both avoid categorical funding restrictions and increase available funds is to pool or integrate funding from several public agencies and finance the initiative through this more flexible and comprehensive mechanism. Reflecting the networking and collaborative activity seen at the provider level over the past several years, collaboration at the funding level can result in an integrated system of care that addresses a full array of child and family needs. Service integration is not a new approach to providing services to families – it has been around for a while – but many of the fiscal reform initiatives re-energized the concept. This type of collaboration requires clear role definition and the development of trust, which takes considerable time and effort, but the result can be new levels of responsiveness to complex needs, an increased flexibility to focus on outcomes, and broader cooperation and enhanced relationships across agencies generally. As one program administrator described the integrated funding initiative in his state, “this is the wave of the future—the way child welfare should be run.”

Colorado’s initiative in Boulder County, for example, established a new entity that institutionalizes interagency partnerships and integrates county funding from mental health, corrections, social services, public health, substance abuse services, and other community services. This allows the interagency treatment planning team to reduce duplication and provide a variety of flexible wraparound and in-home services. Minnesota’s collaborative initiatives allow the integration of funding from two state departments (human services and education) to provide services for children prenatally through age 21. And Missouri’s Interdepartmental Initiative for Children with Severe Needs integrates funding from state social services, mental health, health, and education departments to support comprehensive, unified care for children likely to need services funded by multiple state agencies.

Another way to avoid categorical funding restrictions is to obtain a title IV-E waiver, in which the federal government waives certain restrictions and allows a broader and more flexible use of federal funds. The purpose is to test innovative strategies (including but not limited to managed care initiatives). However, waivers have their own set of restrictions, including a government preference for an experimental design (control group and random assignment), a requirement for an independent evaluation, and a limited authorization period (at the end of the waiver period, states have to revert to their previous way of operating their system unless they receive extensions). These restrictions have discouraged some states from developing initiatives that would allow funding flexibility, or at least discouraged them from operating such initiatives under a waiver.

Florida, for example, was granted a IV-E waiver for its privatization initiatives; however, the state decided to proceed with privatization without implementing the waiver, due at least in part to the stringent evaluation requirements (Florida Department of Children and Families, 2001). Washington’s waiver initiative has ceased operation, and one factor in its demise was the evaluation requirements. Texas also was granted a IV-E waiver, but by the time the waiver was granted the initiative had already been in operation for a year and some shifting in services had occurred, so that the waiver demonstration was no longer perceived as financially advantageous and the state withdrew it. Five other states currently utilize IV-E waivers as platforms for their fiscal reforms and the flexibility afforded by their initiatives (California, Connecticut, Maryland, Michigan, and Ohio).16

In general, states that did not utilize IV-E waivers for their fiscal reforms did not need waivers. Some initiatives targeted children not in foster care; e.g., Massachusetts covers 75 percent of all children and families in the child welfare system but excludes most children in care. Others tapped state or local general revenue funds and other funding streams rather than IV-E funds, such as New York City’s initiative in which the flexible dollars are funded through general operating revenue. Others operated initiatives that did not require deviation from IV-E requirements, such as Illinois’s initiative in which foster care payments are still covered by IV-E (Illinois operates three separate IV-E waivers in other child welfare reform efforts).

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