O3219: More Money, Fewer Problems? The Effect of Foster Care Payments on Children’s Health and Quality of Care

Background: Six percent of children in the US, including up to 12 and 15 percent of Black and Native American children, respectively, are removed from their families by child protective services and placed in foster care (FC) before age 18. These children are a particularly vulnerable population, often coming from low-income and single-parent households and having suffered abuse or neglect as well as the trauma of removal. One way state FC systems can improve the life trajectory of severely maltreated children is through monetary support for foster families who provide homes for victims of abuse and neglect. Payments to care providers, known as FC maintenance payments, amounted to approximately $6 billion in 2017 and are among the largest per capita cash transfers directed toward disadvantaged children in the US.

Methods: We estimate the effects of FC payment rates on caregiver labor supply, children’s FC experiences, and children’s health by leveraging natural variation in the timing of increases to state statutory minimum payment rates (event study and dynamic triple-difference designs). In response to a lack of centralized data on child welfare policy, we assemble a novel 13-year, 39-state panel of historical payment rates and use Medicaid claims and the AFCARS to measure child health, caregiver characteristics, and FC experiences. This paper is among the first to use Medicaid claims across multiple states to estimate the effect of a policy on the health of children in FC.

Results: We find that a $1,000 increase in the annualized basic statutory rate is associated with a $740 increase in the actual payment a caregiver receives per child. Surprisingly, however, and in sharp contrast to the prior literature, we find that increases to FC payment rates have only a modest effect on whether a child is placed with a family or in congregate care: a $1,000 increase in a state’s annual payment rate is associated with a precisely estimated 0.6 percentage point increase in the likelihood of family home placement just over two years after the policy is implemented. Our results also reveal few significant effects of payments on placement stability, exit settings, neighborhood quality, health care utilization, and child health. These results are robust to a variety of subsamples and specifications.

Conclusion: Overall, our findings suggest that, along the indicators we observe, raising FC payments may not be a cost-effective strategy for improving children’s quality of care. Exploring mechanisms with additional data from the American Community Survey, our findings suggest that increases in payments are not associated with measurable reductions in caregiver socioeconomic status or increases in children per household but leave open other possible explanations for lack of improvement in quality of care metrics.