WELFARE & PENSIONS|
41: Mind the children
Innovation in child welfare services
The problem: bureaucratized child welfare
Government-run child welfare services can sometimes be slow and bureaucratic. The children themselves have no voice, and there is often nobody to campaign on their behalf for quicker, better placement so that they can rebuild their lives after personal or family problems. So children remain too long in anonymous homes, where they begin to become institutionalized and even more withdrawn and unsocialized.
The idea: contract management of child welfare
Why not contract out the business of placing children with new families, so that the state becomes the watchdog and guarantor that children's welfare is being looked after, but where the actual process is undertaken by independent groups with a clear incentive to achieve results? And how best to ensure that providers are properly incentivized, while putting the welfare of the children first?
Example: contracting in practice
For many years, child welfare services in the United States have been contracted out to private-sector providers. But until recently, these contracts have been structured as fee-for-service arrangements. Unfortunately, this provides no economic incentive for the contractor to move the child out of temporary care and into loving homes. Indeed, the incentive structure is perverse: when they do place a child, contractors lose the fee income from the residential service they themselves provide.
But now, increasing numbers of state governments are beginning to use more sophisticated placement contracts in child welfare services. It is a novel approach: but in the small number of regions where this has been tried, the results are promising.
This new approach is based on Requests for Proposals (RFPs). In this system, the contractor must first agree to deliver the required service - the best placement for the child, in the shortest possible time - at a fixed price per case. In other words, the system specifies the outputs that must be delivered, rather than rewarding providers on the basis of their input costs. This shifts the risk to the private-sector providers, who are more adroit at handling it than public-service agencies. And there are strong economic incentives for the contractor to place the child well, quickly, and without fuss.
Kansas became the first state to outsource its adoption, foster care, and family preservation services like this in 1997 (the State of Michigan would follow a similar restructuring later).
The Kansas initiative had to address the problem of how to move from state-run welfare services to privately-run welfare services. So it gradually phased in the new system over a number of months. Rigorous quality standards and output specifications were drawn up, but the contractors were allowed considerable freedom over how they achieved these outputs.
Under the 'capitation' system, a non-profit consortium of relevant agencies, backed with government subsidies, would award a fixed-price contract for the care and placement of every child. Contractors are given a year to place a child: if they fail, they lose money. If the adoptive home fails to prove suitable, then the agency would be forced to find the child a new home. So the incentives promote quick, quality placement.
Kansas Governor Bill Graves commented in the Wichita Eagle, that: "this isn't about saving money. In fact, it may well cost us more money, and that is OK in the long-run if the results are positive for the children in our state." But in fact, an increase in performance may very well be possible at much lower cost, thanks to the incentive of competition. The programme has not been in existence long enough to gauge the long run results, though up to now they, have certainly been promising.
Assessment: promising start
In Kansas, 91 percent of the family placements under the system have remained intact: the goal given to the agencies was to 80 percent. There has also been an increase in general adoptions by 44 percent (which is thought better than children spending far too long in institutional care). The psychological and social welfare goals (keeping siblings together, keeping a child near their home community etc) were exceeded.
There was concern that turning child welfare over to the private sector might result in the most promising children getting better placement, while minority children or disabled children would be neglected. However, in Michigan, the number of black children adopted increase 176 percent, while the number of disabled children adopted increased 102 percent. This suggests that the economic incentive to have the children get the best placement in the shortest amount of time was successful, and particularly so in the case of some minority groups who actually fared very poorly in the old state-run arrangement.
Representatives of the contracting system in Kansas are convinced that the efficiency in child placement indicates that private contracting is the way of the future.
Despite the worries that trusting child welfare to economic incentives could result in inferior care, the fact that the agencies exceeded their goals indicates that these concerns can be overcome. The real question is not whether it is morally safe to trust market forces, but who can best benefit the children. The private sector has proved better for the children and has managed the transition. While it is too early to determine whether the long run will yield lower costs, it seems the likely outcome.
For further information:
- Tyson, Ann Scott (1997) 'Kansas Pioneers a Solution to Child-Welfare Woes' Christian Science Monitor August 15.
- See the www.privatization.org database on child welfare services.
- Frontier Center for Public Policy, (1998) Re-inventing Child Welfare in Kansas: www.fcpp.org.
Copyright 2002: Adam Smith Institute
Created and Maintained by: Cyberpoint Limited