State Innovations in Child Welfare Financing. Managed Care in the Child Welfare System

04/01/2002

In the early 1990s, some child welfare professionals began to advocate the adoption of managed care models, and many state child welfare systems began to try such arrangements. By the middle of the 1990s, some observers believed that managed care in child welfare was developing very rapidly (Scallet, Brach, and Steel, 1997) and was about to revolutionize the field (Emenhiser, Barker, and DeWoody, 1995). However, it appears that the adoption of managed care principles and tools in child welfare service systems has proceeded slowly. The Child Welfare League of America’s 1998 state and county managed care survey indicated that 29 states had some kind of managed care or privatization initiative (McCullough and Schmitt, 1999). It was estimated, however, that such initiatives targeted only as little as 10 percent of the nation’s child welfare population.

Perhaps the driving force in the development of managed care in child welfare was the rapidly escalating costs experienced by state child welfare systems in the late 1980s and early 1990s. This increase in costs was largely driven by increases in the numbers of child maltreatment reports and children entering out-of-home care. In 1984, a total of 1,727,000 children were reported as neglected or abused; this number had risen to 2,890,234 in 1993—an increase of 68 percent (Curtis et al., 1995). By 1996, that number had increased to 3,126,000 (Waldfogel, 1998). Reports declined in 1997 and 1998 before increasing again in 1999 (NCANDS, 1999, 2000, 2001). The number of children in out-of-home care grew by 65 percent between 1984 and 1993, from 270,000 to 445,000 (Curtis et al., 1995). By 1999, the number of children in care had increased to 581,000 (AFCARS, 2001).

Increases in the unit costs of services also added to the increase in the cost of foster care. Moreover, the substance abuse crisis contributed to an increase in children entering the system with multiple psychological and physical traumas, such as high rates of exposure to drugs in utero. In addition, improved diagnostic tools and treatment capability raised expectations for state agencies to provide service for complex conditions. Combined, these factors result in small numbers of children with very severe difficulties who may absorb a majority of resources.

All of these factors are likely to have contributed to increased foster care expenditures. Of course, increased costs may provide a greater benefit for the children in state care. Insofar as specialized foster care placements address the complex needs of children, better outcomes, if achieved, may justify the heftier price tag.

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