A market alternative to child adoption and foster care.

• Author: Blackstone, Erwin A.

Every year almost one million children in the United States are victims of neglect or abuse. At a given time, about 581,000 children are in foster care and more than 125,000 are available for adoption. About 17 percent remain at least five years in foster care, a status that is intended to be temporary (U.S. Department of Health and Human Services 2001).

The average age of children in foster care is 10 years. Many older children cannot even be placed in foster care; 8 percent are in group homes and 10 percent are in institutions. Unfortunately, a significant number of children who spend large periods of time in foster care, which usually involves many different foster homes, tend to become criminals. A study in Rochester, New York, found that 90 percent of youths who experienced at least five family transitions became delinquent (U.S. Department of Justice 1999). Minorities seem to be over-represented in the foster care population. Black children, for example, comprise 39 percent of the foster care population and 42 percent of those awaiting adoption, while they represent only 12.3 percent of the population.

It is more difficult to find adoptive homes for older or minority children. The waiting time nationally to adopt a healthy infant ranges from one to seven years. It takes four to eighteen months to adopt a typical child from foster care where the average child is 10.3 years old. Adopting a foreign child takes from 6 to 18 months. A study of Michigan adoptions found that black children were adopted at one-third the rate of Caucasians (Barth 1997). Further, even once adopted, older children tend to return at a higher rate to state custody. Five percent of children between three and five years old are returned compared with 17.1 percent for those between 12 and 14 (Evan B. Donaldson 2000).

Some states have tried to improve the process of foster care and adoption by shifting more of the activities to private providers. The intent is to utilize the power of competition and incentives. In this article we review and evaluate the pioneering privatization efforts of Kansas and Michigan. We will then suggest possible market-based improvements to achieve appropriate and expedited placements. The objective is to maximize child welfare while recognizing budgetary limits.

Privatization in Kansas

The American Civil Liberties Union (ACLU) brought a class action suit against Kansas, claiming that its child welfare system had excessively large caseloads and inadequate monitoring of children. As part of the 1993 settlement, Kansas moved toward privatization of its system.

For foster care a bidding process was employed to select a private contractor to serve in each of five regions. In February 1997 three nonprofit contractors from Kansas won the right to be the monopoly provider in each region. Responsibilities included providing homes, medical, and all other required services. The state was broken up into regions in order to maintain the foster care child in close proximity to his or her family because the goal of foster care is family reunification if possible. If reunification is undesirable, adoption is then normally tried. A fixed payment was set for the entire duration of the child in foster care. The 1999 amount was $15,511, and the payment was adjusted annually. This amount had to be estimated because under the state system costs were not maintained by activities. The contractor was required to accept every child but could receive special allotments for difficult cases. At the inception of privatization, the contracts allowed the providers to keep profits not exceeding 10 percent per child. Symetrically, Kansas would reimburse any excess costs above 10 percent. One contractor estimated that if a child remains in foster care longer than six months it loses money.

Under the original contract, costs were on the average 65 percent above the set price. Accordingly, in July 2001, four years after the initiation of privatization, contracts were changed to provide a fixed price per month of $1,958 to $2,200, depending on the region (James Bell Associates 2001).

As a result of the ACLU suit, adoption services were also privatized in October 1996. Lutheran Social Services (LSS) of Kansas and Oklahoma was the only bidder for the statewide contract. LSS and its 12 subcontractors provided adoption services for 1,400 to 1,600 children. Unlike foster care, proximity of the child to his or her original family is not important, and therefore a statewide company was contracted to handle all cases. The nonprofit contractor received $13,556 to provide all adoption services including maintenance of the child. The child was referred to the adoption provider upon the termination of one parent's rights. This early referral contributed to significant losses for the adoption provider because termination of both parents' rights is required for a child to be adopted. While the legal process, which is outside the control of the contractor, worked to free the child for adoption, the provider had to cover all foster care expenses. At the end of two years, LSS had lost $5.5 million and its subcontractors had also incurred substantial losses (Mainstream 2001).

In July 2000, a new statewide contractor was selected, and a year later the fixed price contract was replaced with a per month payment of $2,101. The contractor was still responsible for all costs for children returned to state custody within 18 months of the adoption placement. The change in payment was...