Policy Documents

Privatization: A Growing Trend in Child Welfare

William Eggers and Adrian Moore –
June 1, 1997

Last December, President Clinton issued a bold challenge to the states: By the year 2002, double the number of children moved from foster care to adoptive homes each year. "The public child-welfare system was created to provide a temporary haven for children," he said, "not let them languish forever in foster care."

Many states are trying to meet the Clinton challenge by turning their child-welfare programs over to the private sector. A recent survey by the Child Welfare League of America (CWLA) reports that of the 40 states responding to the survey, 35 were moving towards managed care or other privatization strategies in their child-welfare programs. Of those 35 states, over 75 percent are currently implementing management or service delivery changes, or plan to implement changes in the next three years. The CWLA also reports that 36 percent of the reform initiatives call for the delivery of better and more appropriate services through privatization, and 21 percent hope to achieve reduced costs and high-end or out-of-home care using private providers.

Kansas has recently become the first state in the nation to fully privatize its adoption, foster-care, and family preservation services. Kansas's Department of Social and Rehabilitation Services, previously the state's largest provider of adoption and foster-care services, now purchases these services from a network of private providers. No longer does the state recruit foster-care or adoptive parents or send in social workers to assist families in crisis. These responsibilities--along with administration, placement, counseling, and follow-up services--have been turned over to private, nonprofit organizations.

Michigan has also emerged as a leader in foster care and adoption reform, with privatization as a key ingredient in the state's changes. About two-thirds of foster care and placements in Michigan are made by private agencies. The private agencies have lower child-to-caseworker ratios than the state (21:1 versus 30:1) yet cost less per day per child.

Other states are following the Michigan and Kansas leads, applying managed care principles and methods to their child-welfare systems. Wisconsin and New Jersey will experiment with pilot managed care programs within the next year. Sarasota County, Florida, has launched one of five such pilot programs in the state in 1996, turning over its problem-ridden foster care and adoption programs to a group of nonprofit agencies led by Sarasota YMCA.

West Virginia is also turning to managed care to improve quality and control costs in the state's entire child-welfare program. State officials are in the process of designing a plan to move services over to private providers, as well as change or eliminate regulatory barriers to managed care implementation.

Performance Requirements Are Key

One advantage of privatization is that it gives public officials the freedom to creatively design contractor payments to correspond with certain performance goals. For example, Michigan is using a three-tiered payment system of performance incentives to reward and penalize private agencies. If an agency fails to place a child in a qualified home within eight months after the child has been freed for adoption, it loses over $2,000 in payments from the state. On the other hand, if an agency finds a home for a difficult-to-place, special-needs child, it receives an additional $3,000.

In Kansas, the adoption contract shifts nearly all the cost risks onto the private provider. The private agency receives $13,500 for each child, out of which it must pay for foster care and counseling services for as long as the child remains in foster care. If the agency fails to place the child in an adoptive home within a year, it will lose money. If the adoptive home placement fails, the agency must place the child again--but with no additional state money.

Kansas's performance standards are quite demanding, especially in comparison to the track record of the state's social services department. The state was placing only about one-fourth of children in homes within six months after they were freed for adoption--but it wants the private providers to place 70 percent within six months and 90 percent within a year. If the placement rate does not approach this, the contract will not be renewed.

National groups like the Children's Defense Fund have expressed support for the general concept of a privatized, managed care model for child-welfare services. "When you look at the goals of managed care and the goals that have been behind the child-welfare reforms we have supported, there are a lot of similarities," says Mary Lee Allen, the director of child welfare and mental health for CDF. "The movement is in the right direction."

William Eggers directs the Privatization Center, and Adrian Moore is the Associate Director of Economic Studies, at the Reason Foundation.