Payment rates and the stability of subsidized child care: Evidence from Minnesota's child care assistance program

Participation instability has been recognized as a major challenge in state child care subsidy programs and may undermine the benefits of these programs to the children and families they are intended to support. Payment rates – the maximum amounts that state subsidy programs will pay for child care in a given period – directly determine which providers are affordable to subsidized consumers and what schedules of care they can afford. Payment rates also affect the resources available to providers and their incentive to accept subsidies. This study examines the effect of payment rate increases on the stability of participation in child care subsidies and the stability of subsidized care arrangements. We study the impact of a major update to payment rates for the Minnesota Child Care Assistance Program, using monthly child- and provider-level administrative data and a quasi-experimental design. We implement a regression discontinuity design built on the state's method of setting county rates. We find strong evidence that higher subsidy payment rates lead to more stable subsidy participation and care arrangements. Thus, state-determined payment rates are a critical policy lever that affects access to care.