Issue: A 1995 study of the family child care homes portion of the Child and Adult Care Food Program (CACFP)

found that nearly 80 percent of children served came from

middle and higher income families. To refocus the program

on low-income children, the Personal Responsibility and

Work Opportunity Reconciliation Act of 1996 (PRWORA)

mandated an income-targeted meal reimbursement 

structure and called for a study of its effects. The U.S.

Department of Agriculture (USDA) contracted with Abt

Associates Inc., for a study of the effects of tiered meal

reimbursement on the family child care homes portion of

the CACFP. This comprehensive study was based on

administrative data and nationally representative samples

of participating family child care homes, their sponsoring

organizations, and the parents of the children they served.

Background: The CACFP is a Federal program that subsidizes healthful meals and snacks in child and adult daycare facilities. CACFP reimburses child care providers at

various rates for up to two meals and one snack per day

served to eligible children and, in some cases, provides

child care providers with USDA commodities. The program operates in nonresidential daycare facilities including child care centers, after-school-hours child care centers, family and group child care homes, and some adult

daycare centers. In fiscal year 1999, the child care component of the program served an average of 2.6 million children daily at a cost of $1.4 billion. Thirty-seven percent 

of these children were served through child care homes—

the focus of this brief—and 63 percent through centers.

CACFP is administered at the Federal level by the USDA

Food and Nutrition Service (FNS). State agencies generally oversee the program at the local level; in Virginia, FNS’

Mid-Atlantic Regional Office serves this function.

Family child care homes can participate in the CACFP

only if they are sponsored by an organization that has

entered into an agreement with the State office to administer the program at the local level. Sponsors are responsible

for recruiting care homes, determining that the homes

meet CACFP eligibility criteria, determining their tier status, providing training and other support, and monitoring

the homes to make sure that they comply with applicable

Federal and State regulations. Sponsors receive and verify

the homes’ claims for CACFP reimbursement, forward the

claims to State CACFP offices for payment, receive the

reimbursements, and distribute the meal reimbursements

to the homes. Sponsors receive payments for these 

administrative activities that are based on a four-part 

formula—the lowest amount of a) actual costs, b) Stateapproved budgeted costs, c) the sum of a rates-timeshomes schedule, or d) 30 percent of total meal reimbursements and administrative costs. The rates-times-homes

schedule accounts for economies of scale by reimbursing

sponsors at decreasing rates as the number of homes sponsored increases (table 1).

United States

Department of

Agriculture

Economic 

Research

Service

Program Targeting: Effects of

Reimbursement Tiering on the Child 

and Adult Care Food Program

Linda M. Ghelfi

Food Assistance and Nutrition Research Report Number 26-1 April 2002

IN FOOD ASSISTANCE

Table 1–Administrative cost reimbursement rate schedule for family child care home sponsors, July 1998 - 

June 1999

Rate per month per home

48 contiguous States,

Number of homes DC, and territories Alaska Hawaii

Initial 50 (homes 1-50) $76 $123 $89

Next 150 (homes 51-200) 58 94 68

Next 800 (homes 201-1,000) 45 73 53

All additional (homes 1,001 & over) 40 65 47
2 Economic Research Service / USDA

Program Targeting: Effects of Reimbursement Tiering on the Child and Adult Care Food Program / FANRR-26-1

PRWORA established a two-tier structure of meal reimbursement rates for CACFP family child care homes.

Homes that are either located in low-income areas or run 

by providers with family incomes at or below 185 percent

of the Federal poverty guideline are designated as Tier 1.

An area is considered low-income if 50 percent or more of

the children at the local elementary school have been

approved for free or reduced-price school meals, or if 50

percent or more of the children in the area are in families

with incomes at or below 185 percent of the Federal

poverty guidelines as measured by the most recent decennial census.

Meal reimbursement rates for Tier 1 homes are comparable to the rates that existed for all CACFP homes before

PRWORA. Family child care homes that do not meet the

low-income criteria are designated as Tier 2. Tier 2 homes

receive lower reimbursements, although they can be reimbursed at Tier 1 rates for meals served to children from

families with incomes at or below 185 percent of the

poverty guideline, given appropriate documentation.

Tiering cut meal reimbursements almost in half for Tier 2

providers. As shown in table 2, rates are higher in Alaska

and Hawaii due to higher food costs in those States.

Findings: A key study finding was that the family child

care homes component of the CACFP became substantially more focused on low-income children after tiering was

introduced. The share of meal reimbursement dollars for

meals served to children with household incomes at or

below 185 percent of the Federal poverty guideline doubled from 21 percent in 1995 to 45 percent in 1999 (fig.

1). The reallocation resulted from 3 factors: 1) the number

of low-income children served by CACFP homes grew by

165,000 (80 percent); 2) the number of higher income

children fell by 174,000 (23 percent); and 3) meals for

nearly all low-income children were reimbursed at the

higher rate, while meals for 42 percent of higher income

children were reimbursed at the lower Tier 2 rate. More

than half of higher income children receive Tier 1 reimbursed meals because they are cared for by Tier 1 providers.

Another important finding of the study was that tiering

reduced the number of family child care homes participating in the CACFP, but attendance declined only a little.

The number of CACFP family child care homes declined

by 10 percent from 1996 to 1999. Although factors other

than tiering might arguably have caused a decline, projections based on economic and demographic trends indicate

that the number of homes would have grown slightly in

the absence of tiering (fig. 2). Total attendance changed

relatively little, however, with increases of 1 percent or

less in 1996 and 1997 and similar magnitude decreases in

1998 and 1999.

Results from the study also indicated that tiering did not

lead to deterioration in the number or nutritional quality of

meals and snacks offered to children in Tier 2 CACFP

homes. Compared with similar providers in 1995, Tier 2

providers in 1999 offered essentially the same pattern of

meals and snacks, complied equally or better with meal

component requirements for all meals and snacks, and

offered meals and snacks that contained similar or greater

percentages of the recommended daily amounts of nutrients.

Results indicated that Tier 2 providers raised child care

fees and held down food expenditures. Average child care

fees were higher for Tier 2 providers in 1999 than for 

similar providers in 1995 by about $11 per week for a

Figure 1—Share of meal reimbursements in 1995 and 

1999 by ratio of children's household income to the 

Federal poverty guidelines

Income

131-185%

$82

10%

$88

11%

$624

79% $368

55%

$134

20%

$166

25%

Income

>185%

Income

0-130%

1995

$793 million (in 1999 dollars)

1999

$668 million 

Source: Administrative data on CACFP family child care homes and 

surveys of parents of children in CACFP family child care.

Table 2—Meal reimbursement rates for family child care homes by tier, July 1998-June 1999 

48 contiguous States,

DC, and territories Alaska Hawaii 

Meal Tier 1 Tier 2 Tier 1 Tier 2 Tier 1 Tier 2

Breakfast $0.90 $0.34 $1.42 $0.52 $1.04 $0.39 

Lunch/supper 1.65 1.00 2.68 1.62 1.93 1.17 

Snack .49 .13 .80 .22 .57 .16
child in care for 36 hours, in constant dollars. Tier 2

providers’ food expenditures were about $2 lower per

child per week than would be projected based on characteristics of their operations and location. These differences

appear to reflect some providers’ direct responses to the

lower meal reimbursements (about 15 percent said they

made these changes in response to lower reimbursements)

and selective attrition driving out (or preventing entry by)

Tier 2 providers who operated in markets that would not

support higher fees or lower expenditures.

Tiering has added challenges for CACFP sponsors, but it

has not led to a substantial decline in the number of sponsors. Public and private nonprofit sponsoring organizations

are responsible for ensuring that providers meet CACFP

requirements and serve as conduits for reimbursements to

providers. With the introduction of tiering, sponsors

became responsible for classifying homes as Tier 1 or 

Tier 2; determining the eligibility of children in Tier 2

homes for meals reimbursed at Tier 1 rates (if requested

by the provider); and, for Tier 2 providers with some 

children reimbursed at Tier 1 rates, determining each

month the number of meals to be reimbursed at each rate.

Along with those new administrative duties, many sponsors reported increased difficulty in recruiting and retaining providers. The number of CACFP sponsors peaked in

1994-95 and declined slightly in each subsequent year.

The rate of decline has been unchanged since tiering was

instituted (fig. 3).

Finally, results from the study indicated tiering had little

effect on the total number of licensed family child care

homes. Homes must be licensed, certified, or registered

according to applicable State requirements in order to 

participate in the CACFP. CACFP benefits have been seen

as a major incentive for homes to become licensed. While

the number of CACFP homes fell, the total number of

licensed homes increased by 4 percent from 1997 to 

1999 (fig. 4).

Unresolved Questions: The comprehensive study of

CACFP has raised questions in two key areas. First, reimbursement tiering was instituted to refocus the child care

homes portion of the CACFP on low-income children

without a means test of each individual child’s family

income. Low-income status of the areas in which

providers are located or their own low-income status is

used as a proxy for the children’s low-income status.

Tiering was conducted in this manner to avoid a child

means test that was blamed for low participation by homes

when they were first allowed into the program in 1976.

Parents were required to disclose their family income to

CACFP family child care providers; this means test was

viewed as burdensome for providers to administer and too

Program Targeting: Effects of Reimbursement Tiering on the Child and Adult Care Food Program / FANRR-26-1

Economic Research Service / USDA 3

0 1989 1991 1993 1995 1997 1999

200

400

600

800

1,000

1,200

1,400

Source: CACFP administrative data.

Figure 3—Number of sponsors of CACFP family child 

care homes

Fiscal year

1989 1991 1993 1995 1997 1999

0

50,000

100,000

150,000

200,000

250,000

300,000

Source: Children's Foundation data on licensed homes and CACFP 

administrative data.

Figure 4—Number of licensed and CACFP family 

child care homes

Licensed homes CACFP homes

1989 1991 1993 1995 1997 1999

0

50,000

100,000

150,000

200,000

250,000

Figure 2—Actual and projected numbers of CACFP 

family child care homes

Fiscal year

Projected homes

Actual homes
Program Targeting: Effects of Reimbursement Tiering on the Child and Adult Care Food Program / FANRR-26-1

invasive for their relationship with the few families for

whom they each provided child care.

The child means test and a three-level reimbursement tiering system based on family income levels was removed

from the child care homes portion of the CACFP in 1978.

The manner in which the current indirect means test was

instituted guarantees that nearly all low-income children

are served meals that are reimbursed at the Tier 1 rates,

but also allows higher income children cared for by Tier 1

providers to be served meals reimbursed at those rates. In

order to restrict Tier 1 reimbursements exclusively to lowincome children’s meals, a more direct means test is

required. How such a test could be designed and put into

operation without causing a large dampening effect on

participation by child care homes is an open question.

Second, while the number of sponsoring organizations

does not appear to have been reduced by tiering, sponsors

reported changes in the content of training and greater difficulty in recruiting homes. Sponsors also rate low-income

area determinations and providers’ low-income status

determinations as their most burdensome duties. Open

questions regarding sponsoring organizations include:

• Has the decline in participating homes put some sponsors on tenuous financial grounds that will cause them

to drop out of the program in the near future?

• Is the nutrition knowledge of providers adequate now

that sponsors need to spend some training time to educate providers on tiering determination rules?

• Is the reimbursement of sponsors’ administrative costs

adequate now that tiering has added income status

determination to their duties?

ERS has funded an exploratory study on sponsors’

administrative cost reimbursements that will shed some

light on the last of these questions.

Information Sources:

Bernstein, Lawrence S., and William L. Hamilton.

Sponsoring Organizations in the CACFP: Administrative

Effects of Reimbursement Tiering. E-FAN-02-003. U.S.

Department of Agriculture, Economic Research Service,

March 2002.

http://www.ers.usda.gov/publications/efan02003

Crepinsek, Mary Kay, Nancy R. Burstein, Ellen B. Lee,

Stephen D. Kennedy, and William L. Hamilton. Meals

Offered by Tier 2 CACFP Family Child Care Providers:

Effects of Lower Meal Reimbursements. E-FAN-02-006.

U.S. Department of Agriculture, Economic Research

Service, March 2002. 

http://www.ers.usda.gov/publications/efan02006

Crepinsek, Mary Kay, Linda M. Ghelfi, and William L.

Hamilton. Households with Children in CACFP Child 

Care Homes: Effects of Meal Reimbursement Tiering.

E-FAN-02-005, U.S. Department of Agriculture,

Economic Research Service, March 2002.

http://www.ers.usda.gov/publications/efan02005

Hamilton, William L., Nancy R. Burstein, and Mary Kay

Crepinsek. Reimbursement Tiering in the CACFP:

Summary Report to Congress on the Family Child Care

Homes Legislative Changes Study. FANRR-22, U.S.

Department of Agriculture, Economic Research Service,

March 2002. http://www.ers.usda.gov/publications/fanrr22

Hamilton, William L., Eric M. Stickney, Nancy R.

Burstein, and Lawrence S. Bernstein. Family Child Care

Home Participation in the CACFP: Effects of

Reimbursement Tiering. E-FAN-02-002, U.S. Department

of Agriculture, Economic Research Service, March 2002.

http://www.ers.usda.gov/publications/efan02002

Zotov, Natasha, Shao-hsun Keng, and William L.

Hamilton. Family Child Care Providers in the CACFP:

Operational Effects of Reimbursement Tiering. E-FAN-02-

004, U.S. Department of Agriculture, Economic Research

Service, March 2002. 

http://www.ers.usda.gov/publications/efan02004

4 Economic Research Service / USDA

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