Introduction

In the December 14, 1988, Federal Register, (45 CFR Part 1356) the Department of Health and Human Services (HHS) published the final rule to implement state reimbursement of nonrecurring expenses in the adoption of special needs children. The rule was promulgated to implement a change to Title IV-E of the Social Security Act made by the Tax Reform Act of 1986. Since that time the Secretariat to the Association of Administrators of the Interstate Compact on Adoption and Medical Assistance (AAICAMA) has monitored implementation of the rules by its member states. Contacts with non-member states also have been made in order to assess progress in carrying out this policy.

According to the Secretariat's most recent survey of the states concerning this program, the cost and administrative burden have not matched expectations. This is chiefly because private agency facilitated adoptions, an expected high-cost category, make up a small percentage of the applications for reimbursement. The purpose of this Issue Brief is to provide a general update concerning the reimbursement programs operating in the various states.

Background

The Tax Reform Act of 1986 repealed a provision of the Internal Revenue Code under which adoptive parent(s) could take up to $1,500 of certain nonrecurring expenses as a deduction on their federal income taxes. The current reimbursement program replaces the previously allowed deduction with an entirely new method of providing the aid -- one that requires states to share the financial burden with the federal government for certain one-time-only costs incurred in the process of adopting children with special needs. Congress amended Title IV-E of the Social Security Act to require states to set up a program to "make payments of nonrecurring adoption expenses incurred by or on behalf of such parents in connection with the adoption of such child, directly through the State agency or through another public or nonprofit private agency...." (Title IV-E Section 473(a)(B)(i) of the Social Security Act). As specified in the regulations, states reimburse adoptive families for the one-time-only adoption costs (e.g., attorney fees, travel, health examination) and the federal government will match one-half (50%) of the amounts not in excess of $2,000 per adoption. States may set a lower or higher ceiling for the reimbursement. The federal contribution, however, is only available for reimbursements of not more than $2,000. States must be prepared to document and explain the rationale for setting the ceiling on reimbursements at a rate lower than the $2,000 federal cap.

The rule was effective upon its publication on December 14, 1988. In the event state legislation was necessary to implement this mandate, states were given additional time until the end of the second general legislative session after the December effective date, to pass appropriate legislation. In response to a telephone survey conducted in July and August, 35 states indicated the program of reimbursement is operational, seven states said that legislative authority is needed, and nine states have delayed implementation due to administrative and policy development problems (see attachment).

Prior to implementation there was considerable concern expressed about the likely impact of this requirement on the states. The potential cost and administrative burden were foremost among the concerns articulated. At this point the experience of most states indicates the problems anticipated either have not materialized or are less onerous than expected. This is not to say state administrators and adoption specialists are prepared to characterize the program as a significant addition to state adoption assistance programs. Moreover, according to those representing and serving adoptive parents, the reimbursement program has not had the hoped for impact and is too limited regarding the types of expenses that are considered to be reimbursable and the total amount that may be claimed.

Program Cost

Reimbursement of nonrecurring adoption expenses through Title IV-E is available to adoptive parents of special needs children who were born in the United States or another country. The program is open to those individuals who utilize a public or private nonprofit agency to carry out adoptions. Independent adoptions also are eligible, although few if any would likely satisfy the eligibility criteria. The cost of the program is driven by the number of adoptions meeting the eligibility criteria and the dollar amount incurred for one-time-only costs.

As noted above, actual repayment of nonrecurring expenses has not created the degree of financial or administrative burden initially feared by most states. Costs have been noticeably lower than anticipated for two principal reasons. First, the number of applicants and eligibles who have been served is lower than the number originally projected. Second, the expenses claimed have not been excessively costly to reimburse because many items allowed under the rule already are covered under the states' adoption programs.

The rules specify that children with special needs must meet all requirements of section 473(c) of Title IV-E of the Social Security Act. According to that section, special needs exists if:

1) the state has determined that the child cannot or should not be returned to the home of his parents; and

2) the state had first determined (A) that there exists with respect to the child a specific factor or condition (such as his ethnic background, age or membership in a minority or sibling group, or the presence of factors such as medical conditions or physical, mental, or emotional handicaps) because of which it is reasonable to conclude that such child cannot be placed with adoptive parents without providing adoption assistance under this section or medical assistance under Title XIX, and (B) that, except where it would be against the best interests of the child because of such factors as the existence of significant emotional ties with prospective adoptive parents while in the care of such agents as a foster child, a reasonable, but unsuccessful, effort has been made to place the child with appropriate adoptive parents without providing adoption assistance under this section or medical assistance under Title XIX.

Under the foregoing criteria, special needs children placed for adoption by the state for whom Title IV-E adoption assistance or state subsidy would be provided would clearly satisfy the eligibility test. While constituting a large number of potential reimbursement claims as part of the states' adoption programs, most nonrecurring costs for this group would be met by the state. Particular concern was expressed about costs due to an unknown number of applications and reimbursement eligibles that could come from private agency placements, whether domestic or intercountry adoptions (and to a much lesser extent independent adoptions). With some exceptions, state administrators have no reliable means to predict the number of private agency arranged adoptions that might qualify. This fact was particularly worrisome as administrators contemplated reimbursements covering a retroactive period for adoptions finalized on or after January 1, 1987, and within six months after December 14, 1988; or those finalized before January 1, 1987, and for which expenses were incurred after that date.

Given the section 473 criteria, it is easy to see that the task of establishing and predicting eligible adoptions would be easiest in connection with public agency involved adoptions, i.e., the special needs determination would be completed and a fact before the question of reimbursement would be an issue. Determining reimbursement eligibility can be time-consuming and administratively burdensome for adoptions arranged by private agencies whether or not the children involved were born in the United States. The adoption specialist must carefully verify the assertions in the application in order to properly document the decision to grant or deny reimbursement. After establishing eligibility the next step is review of the expenses claimed and the supporting documentation, e.g., cancelled checks, receipts, bills. This part of the process has been described as tedious. It requires detailed procedural accountability on the part of the worker whether the adoptions were arranged by public or private agencies. For example, receipts must be matched to the corresponding bills. In the event the family fails to provide proper proof of an expenditure, the adoption specialist must take steps to track down the correct substantiation before granting the reimbursement. This involves calls to the family, providers and, when applicable, the private adoption agency. Moreover, the specialist devoting time to this activity would be required to sacrifice or reduce the attention given to other components of the job. Fortunately, the number of applicants among the adoptive placements made by private agencies has not been large enough to cause a serious adverse impact workload in most states.

The smaller-than-expected volume of requests for reimbursement from adoptive parents who used private agencies during the retroactive period or since has been the source of some surprise. There are several reasons offered to explain this outcome as identified below:

1) Private agencies operating in the state do not attempt to place special needs children, hence, there are no referrals for reimbursement from this source;

2) Where private agencies are involved with special needs adoption, the state and agency operate under a purchase of service contract and most, if not all, nonrecurring costs already are covered, or are so small the adoptive parents do not find it worth the effort to apply for reimbursement;

3) The state revised its policy concerning the conditions that establish special needs, e.g., race or minority heritage alone would not constitute special needs status absent some "factors or condition" making it reasonable to conclude the children could not be placed without assistance; and

4) Private agencies have failed to alert adoptive parents to the availability of federal/state funds that could help recoup costs incurred in the adoption process.

States that report significant activity in the payment of nonrecurring adoption expenses incurred through private agencies are the exception to the rule. It is difficult to draw conclusions about this situation because it is not clear what accounts for the difference. Often mentioned as contributing to noticeable use of the program are efforts to inform the agencies and train the public agency staff about the benefits available. By regulation, states are required to "notify all appropriate courts and all public and licensed private nonprofit agencies of the availability of funds for nonrecurring expenses of adoption...." (45 CFR Part 1356.41(e)(1).

The principal reason for underutilization, according to many advocates for adoptive parents, is inadequate state efforts to inform parents about the program. However, the extent to which these activities are missing or deficient in the various reimbursement programs and are contributing to low private agency representation among applicants can not be readily assessed. Further, the notification may not have the desired effect, as officials in Oregon can attest based on the extensive publicity given the program in that state. In Oregon, materials were specifically designed to describe the program and the ways it could be used by the clients of private agencies and attorneys. Special outreach efforts also were directed at private agencies. Reportedly, this investment yielded small returns in the form of requests for reimbursement including those costs incurred during the retroactive period.

The effort expended to promote awareness of the program among state agency staff and the public varies from state to state. Based on the Oregon experience, no matter how extensive the publicity and staff training, some adoptive parents will not apply. Three possible reasons for the underutilization of the program by adoptive parents are: 1) They may wish to avoid involvement with state human service agencies -- equating these programs with "welfare"; 2) As noted earlier, they may not believe their children would qualify; and 3) Parents may believe that the reimbursement amounts would not make appreciable differences in the necessary adoption expenditure totals and, thus, would not be worth the effort to apply for the program.

The issue of intercountry adoptions qualify for reimbursement continues to be a sensitive one for many administrators. For some, this requirement appears contrary to Congressional intent in the creation and purpose of Title IV-E adoption assistance. For others, the difficulty is resolving the practical dilemma of assessing the action of a foreign jurisdiction. In any event, this has not proved to be a real cause for concern. As noted in Issue Brief XI, the number of foreign born adoptees who satisfy section 473(c) is not as large as that initially feared by the states. Most states have not had to deal with this issue aside from including it in their policy and procedure statement. It should be noted that where the state has found the adoptions to be eligible, this can be a costly reimbursement category. Generally, the travel required by the adoptive parents and children is the reason for the high cost.

In addition to the number of adoptees to be served, another element in the cost of the program concerns the items that are nonrecurring. Reimbursable expenses are those directly related to the adoption of children (45 CFR 1356.41(i)). According to the rules, nonrecurring costs are: necessary adoption fees, court costs, attorney fees, and "other expenses." Under the category of "other expenses," the rule identified several items including adoption study and transportation that are found to be part of the adoption process. Few states in the Secretariat survey indicated that the average payments have reached the maximum amount available. In fact, according to those states able to report, the average payment is $ 696. Given state experience to date, it would appear the rules properly captured the one-time costs that are not covered through another avenue.

Some advocates for special needs adoption and adoptive parents are interested in expanding the list of "other expenses" that are reasonable and necessary for the adoption process to occur. Among the suggested costs are renovations or remodeling of homes to make them accessible to handicapped children, e.g., wider doorways and ramps for wheelchairs. Such activities were specifically referred to in the preamble to the final rule as "not expenses of the adoption process." Other expenses advocates consider necessary but which do not satisfy the rule as currently articulated are new furniture or equipment, long distance calls to the child and/or caseworker, and new clothing.

As a rule, states cover the adoption related expenses of special needs children placed by them through their adoption assistance program or adoption subsidy program. Consequently for children adopted through the auspices of the public agency the nonrecurring adoption expenses are not excessively costly. For example, Oklahoma routinely covers court costs and attorney's fees for special needs adoptions arranged by its state adoption specialists. It is the private agency placements that generate substantial nonrecurring expenses. Agency fees range from $2,000 to $3,000, while attorney and court costs would be additional. In the Secretariat survey, the most frequently identified costs are travel (including food and lodging) court costs, and attorney's fees, in that order. Travel costs figure prominently in interstate and intercountry adoptions. Some administrators contend that attorneys in their states lobbied very aggressively for the highest possible maximum reimbursement, and that their fees have risen accordingly. Several state agencies were able to come to an agreement with the legal community about reasonable and necessary attorney fees's for adoptions. As a result, attorney fees are held to a certain level. Charges in excess of the maximum agreed amount are subject to partial payment or denied with the support and backing of the Bar Association of the state.

The efforts of private agencies to influence the state maximum also are said to have contributed to the difficulties some states experienced (and some are still experiencing) in setting a reimbursement ceiling. California's legislature, for example, included a January 1, 1992, sunset provision for its $400 limit on nonrecurring reimbursement. Private adoption agencies in that state maintain that this figure is unrealistically low. The sunset provision gives the Department of Social Services an opportunity to collect information on actual costs. Based on input from the private agencies and county public agencies, the department has developed a form to collect information on nonrecurring expenses. The data to be gathered would enable the department to determine the appropriateness of the current reimbursement ceiling and the needs of adoptive parents for assistance in meeting the nonrecurring costs of adoption. Specifically, the public and private adoption agencies are asked to report the following:

· Whether a claim was submitted or if the parents responded that they did not wish to submit a claim;

· Total amount of reimbursement requested;

· Type and amount of expenses claimed;

· Total amount reimbursed;

· Identification of expenses deemed unallowable and thus not reimbursed; and

· Identification, when possible, of reimbursement received from other sources and the identity of those sources.

Conclusion

States expected that the cost and administrative burden of reimbursing nonrecurring adoption costs would be substantial. While additional responsibilities are evident, the overall impact has been far less costly than that predicted. As part of the implementation plan, it was not uncommon for state administrators to request an additional staff position to handle the anticipated increased workload. This was a reasonable precaution given the expected outcome was that claims for reimbursement would include those costs associated with children for whom the state agency had not acted to effect the adoptive placement, e.g., private agency and independent adoptions. Administrators also recognized that additional work would be necessary as part of the reimbursement eligibility determination, i.e., review of case files and various documents establishing the special needs status.

For most states, the low number of non-public agency involved applicants has resulted in a manageable workload. Hence, adoptions arranged by state agencies continue to be the focus of activity. In contrast, some state adoption specialists report a noticeable increase in costs and administrative burden as initially projected due to the volume of reimbursement applications and inquiries from private agency adoptive parents, in addition to those adoptions facilitated by them. While there is no way to absolutely predict program use, there are a few indicators that stand out. First, states that have publicized the program, i.e., made sure the attorneys, courts, and adoption agencies are adequately informed, are more likely to be approached by adoptive parents who worked through private agencies. Significant and steady requests for reimbursement also appear connected to appropriate training of public agency staff-- the administrators and adoption specialists -- who would be the primary information source for adoptive parents and those representing their interests. In addition, the availability of funds to cover significant cost items previously not covered by the state adoption program, e.g., travel for interstate adoptions, tends to affect participation.

Administrators suspect potential applicants are performing some self-screening. If there is understanding of the special needs criteria, adoptive parents may be concluding that their children do not satisfy the requirements. The items that may be covered also have an impact on program participation. In some states, the policy of the adoption assistance program includes outright provision of or paying the bulk of the costs that would be covered through nonrecurring reimbursement. Under the circumstances, applying for assistance may not appear worth the effort.

The fact that most states report little activity under this program suggests the adoption assistance program activities of those states are of a very comprehensive nature. In other words, the costs of the adoption process are largely assumed by the states either directly or through purchase of service and incentive fees for private agencies working with families who would adopt special needs children. Additionally, in some instances, the clients of private agencies are financially able to absorb the costs of adoption. Organizations representing adoptive parents would argue the list of allowable reimbursable items is too narrow. However, the current level of activity does not appear to suggest a need for program expansion.

ISSUE BRIEF XIV

© August 1990