1. Rate Reform Research and Communications Committee April 7, 2011

2. Table of Contents  Status of Market Price Survey  Rate Reform  Expectation for Review  Timeline  Cost 2

3. Status of Market Price Survey Background Information In an effort to ensure equal access to low-income families, federal law requires Child Care Development Fund (CCDF) Lead Agencies to conduct a market rate study (MRS) at least every two years. The purpose of the MRS is to demonstrate that child care subsidy rates are adequate to ensure that eligible children have equal access to comparable child care services provided to children whose families do not receive any financial assistance for child care. EEC last completed a MRS in 2008-2009. The resulting data and findings from the 2010-2011 MRS will give EEC an updated basis upon which to review its present subsidy rate structure, and to make recommendations to the Board of Early Education and Care and the State Legislature for any necessary adjustments to its rate schedules and funding levels. Thus, it is critical that the study data and analysis about the distribution of child care rates and the findings about market rates be credible and withstand strict methodological scrutiny. Federal CCDF rules encourage states to set reimbursement rates that are at or above the 75 th percentile of prices in the private market. Closing the gap between EEC rates and the 75 th percentile would be a significant challenge given that previous surveys show most rates at or below the 25 th percentile. 3

4. Status of Market Price Survey Expectation for Survey Results Examine the market prices for the 25 th, 30 th, 40 th, 50 th, 60 th, and 75 th percentiles for each type of care with each of EEC’s rate regions. Examine possible alternatives to existing rate areas, especially in regions with clusters of prices that are higher than region as a whole. EEC will receive the following analyses and reports: Initial report with 75 th percentile calculations (3/15) Complete and final market Price Survey Report (4/8) Analysis of market prices and wages (4/1) Analysis of regional price variations and price clusters (4/1) Comparison of EEC rates to those in other states, analysis of available data in the Professional Qualifications Registry, and a review of cost-based reimbursement/incentives used in other states. 4

5. Rate Study Methodology Our next step, at the beginning of FY12, is to release an RFP to hire a firm which will provide direction, guidance, and recommendations relative to rate reform. Three major pieces to the review: 1. Rate “Revenue” Requirement Analysis: This analysis identifies “revenue” paid to providers in the context of operating costs. (Is it more expensive to deliver a Level 4 QRIS Program?) 2. Cost of Service Analysis: This analysis reviews the functions provided and reviews costs in the context of groups. (Is it more expensive to provide care for educationally at risk children?) 3. Rate Design: Construct and evaluate alternative rate structures that meet “revenue” requirement while meeting dual obligation to serve children and remain within appropriated amounts. (Even if it is more expensive to serve certain categories or groups, how do we create a rate structure that addresses this while not exceeding appropriations.) 5

6. Rate Reform We are interested in analyzing payment based on age (Infant, Toddlers, Preschool, and School Age) program type (Center Based, School, Family Child Care) QRIS Rating cost of quality educational risk of child daily vs. weekly rate geography Review should include an analysis of parent fee structure. Contractor will evaluate and recommend a new rate structure for the delivery of child care services in MA. 6

7. Expectation for Review Begin with the information presented in the final report for the Market Rate Survey. Perform a review of the ratemaking methodology including a verification of the accuracy of its calculations and the reasonableness of underlying assumptions. Conduct an analysis of the key variables that must be factored into a rate calculation Perform an analysis of profitability/loss in current rate structure. Conduct research on rates from other states and contrast these rates with statistical data from the US Bureau of Labor Statistics. Gather necessary data from various relevant sources that would enable EEC to establish rates that do not over obligate the caseload accounts. Develop a uniform methodology that can be utilized when establishing a rate methodology. 7

8. Expectation for Review, Continued Review and propose “groupings” for rate payment other than those currently in practice. Examine each grouping separate for disparities. Develop rate methodologies that meet Comptroller and other Commonwealth statutory requirements. Model proposed rate methodology. Calculate the overall impact of the rates on total funds available. Develop rate methodologies that meet Comptroller and other Commonwealth statutory requirements. Model proposed rate methodology. Compile calculations, research, and recommendations into a written presentation. 8

9. Timeline for Rate Reform Review Release RFR in July, 2011. Hire firm no later than September, 2011. Meet with stakeholder groups within first month. Meet on a regular basis with EEC staff to track progress, analyze issues, and modify and clarify the purpose/intent of the project. Present to EEC Board scope of work to EEC Board at the beginning of the project, mid-project report, and final report. Final recommendations delivered no later than December, 2011. 9

10. Firms on Master Service Agreement Accenture Deloitte Consulting LLP Health Management Systems, Inc. MAXIMUS Mercer Health and Benefits LLC Public Consulting Group, Inc. 10

11. Cost EEC will seek to complete the rate reform study for $25K. 11