Child Support Cost Avoidance: 2004 NCSEA 57th Annual Training Conference and Exposition San Francisco, California August 6, 2008 Laura Wheaton The Urban Institute

Modeling Cost Avoidance in TRIM3 Question: How much higher would government benefits be if no child support was received? Two simulations on March 2005 CPS Data 1) 2004 Baseline (benefits received at current levels of child support). 2) Benefits if no child support received. Subtracting (1) from (2) shows reduction in benefits attributable to child support.

Adjusting to OCSE Totals Cost Avoidance Ratio = TRIM3 Benefit Reduction /Child Support Received (where amount of child support is the amount in the TRIM3/CPS data) Total Cost Avoidance = Cost Avoidance Ratio * Child Support Paid to Families (where amount of child support is obtained from OCSE financial data reports)

Cost Recovery and Avoidance: 2004 Child Support Collected = $21.9 billion Cost Recovery = $2.1 billion Cost Avoidance Entitlement Programs (SSI, Food Stamps, Medicaid) = $1.7 billion Block Grant and Discretionary Programs (TANF, Public/Subsidized Housing, CCDF, SCHIP) = $0.9 billion Program Cost Administrative Expenses = $5.3 billion Less Cost Recovery= $3.2 billion Less Estimated Cost Avoidance in Entitlement Programs = $1.5 billion

Food Stamp Program Sources of Cost Avoidance ($1.033 billion) Reduction in food stamp benefit amount. Families rendered ineligible for food stamps or who decide not to participate. Offset to Cost Avoidance (-$110million) Food Stamp child support deduction for noncustodial parents who pay child support. Net Cost Avoidance = $924 million. Food Stamp Program cost avoidance represents savings to the federal government.

Medicaid Sources of Cost Avoidance ($471 million) Persons rendered ineligible for Medicaid or who are eligible for TANF and Medicaid but don’t participate due to child support. Additional sources (not captured) Others who choose not to participate due to child support. Cost avoidance from health insurance obtained through medical support orders. Medicaid cost avoidance represents shared savings to state and federal governments.

TANF Sources of Cost Avoidance ($441 million) Families rendered ineligible for TANF or who decide not to participate as a result of their child support income. TANF cost avoidance frees up money for state use in providing additional services/serving additional families.

Supplemental Security Income (SSI) Source of Cost Avoidance ($336 million) Reduction in participant child’s federal SSI payment. Additional sources (not captured) Child rendered ineligible by child support income or whose family decides not to participate. Cost avoidance in State Supplemental SSI payments. SSI cost avoidance represents savings to the federal government. Savings to state supplemental SSI under certain conditions.

Public and Subsidized Housing Source of Cost Avoidance ($257 million) Families who pay higher rent as result of child support. Because there is a waiting list for public housing/housing vouchers, there is no cost avoidance when child support income renders a family ineligible for assistance. Cost avoidance initially benefits local housing authorities but may eventually benefit the federal government (by enabling reduced funding for section 8 vouchers and lower operating subsidies.)

Child Care and Development Fund (CCDF) Sources of Cost Avoidance ($136 million) Increased copayments. Families becoming ineligible. Eligible families choosing not to participate (not fully captured). CCDF cost avoidance frees up money for state use in providing additional services/serving additional families.

State Children’s Health Insurance Program (SCHIP) Sources of Cost Avoidance ($71 million) Persons rendered ineligible for assistance. Additional sources (not captured): Increased copayments. Persons deciding not to participate. SCHIP cost avoidance frees up money for state use in expanding services/serving additional families, and may also result in lower federal spending.

Cost Avoidance Ratios, 2004 (Current Support) Assistance Type CurrentFormer/Never SSI TANF CCDF Medicaid0.032 SCHIP0.005 Housing Subsidies Food Stamps Total

Cost Avoidance and Lump Sum Payments Programs treat lump sum payments differently than regular income. We estimate that each dollar of tax refund offset distributed to former welfare recipients reduces: SSI by $0.02 CCDF and Food Stamps by $0.01

Cost Avoidance Ratios and Family Income

Conclusion Cost Avoidance is substantial: $2.6 billion in 2004, of which $1.7 billion represents savings to entitlement programs. Cost avoidance may be underestimated because not all sources of cost avoidance are represented. Cost avoidance may be overestimated because some child support might be paid even in absence of child support program. Results do not quantify the broader/long term benefits of child support to children and society.

Information presented here is derived in part from the Transfer Income Model, Version 3 (TRIM3) and associated databases. TRIM3 requires users to input assumptions and/or interpretations about economic behavior and the rules governing federal programs. Therefore, the conclusions presented here are attributable only to the authors of this report.