Efficiency involves converting the least amount of inputs into
the greatest amount of outputs, which is important not only in farming
but also in food assistance programs. In farming, physical inputs
(land, labor, seeds, fertilizer, and others) are converted into
output (crops and livestock). In USDA’s food assistance programs,
taxpayer dollars are the inputs. The outputs are the programs’
goals: to provide needy persons with access to a more nutritious
diet, to improve the eating habits of the Nation’s children,
and to help America’s farmers by providing an outlet for the
distribution of food purchased under farmer assistance authorities.
Both farmers and USDA strive to operate efficiently.
In program analysis, the term “targeting” is often interchangeable
with “efficiency.” In recent years, Congress and USDA
have been particularly interested in operational targeting—focusing
on how the Nation’s food assistance programs are administered—and
benefits targeting—focusing on who is served. Each taxpayer
dollar used to fund a program can be thought of as an arrow that
policymakers send toward a policy target, or program goal. Metaphorically,
operational targeting is the effort to shoot an arrow at a target
at a low cost, while benefits targeting is the effort to hit the
bull’s-eye—getting program benefits to the most needy.
Over the years, USDA has endeavored to operate food
assistance programs efficiently. The Federal Government and
the States continually seek to identify policies and procedures
by which program participants can be served at a low cost or the
needy can be more effectively targeted. USDA has recently initiated
innovative targeting efforts in two of its child nutrition programs.
Program Design Has One Pair of Targeting Decisions . . .
In programs designed to serve recipients most in need, benefits
may be targeted in two ways—through eligibility guidelines
and through the schedule of benefits. Eligibility guidelines are
the criteria households must meet to receive program benefits. Eligible
households become program participants only if they choose to apply.
Household income, adjusted for family size, is a major criterion
for USDA food assistance programs. Age, nutritional risk, breastfeeding
status, and workforce status are among other factors that can determine
eligibility.
If program eligibility guidelines are broad instead of narrow,
the numbers of households that qualify for and can participate in
the program increase, which can support program goals (such as improved
nutrition). However, as participation rises, so too do program expenditures.
Policymakers pursue guidelinestargeting by balancing
the additional cost of broader eligibility guidelines with the gains
in terms of program goals.
While guidelines targeting determines which households are eligible
for a program, benefits targeting determines whether or not
program participants all receive the same level of benefits. Benefits
targeting links benefits to income in an effort to provide greater
program benefits to households that have the lowest incomes. For
example, Food Stamp Program benefits are highest for households
with no income (net of certain allowed deductions). Benefits are
reduced by 30 cents for each dollar of income. Similarly, the National
School Lunch Program provides three different amounts of USDA subsidies
for lunch, depending on the income of a child’s household.
In contrast, a breastfeeding mother who participates in the Special
Supplemental Nutrition Program for Women, Infants, and Children
(WIC) receives a fixed package of specific foods (such as carrots
and tuna fish) regardless of her household’s income, so long
as the income does not exceed WIC’s income-eligibility threshold.
If a low benefit level reduces participation of higher income households,
there is a tradeoff between encouraging participation of higher
income households and targeting benefits.
. . . While Program Administration Has Another Pair
For a program to serve its intended recipients at low cost, two
additional types of targeting may be used in the administration
of food assistance programs. Local program offices try to exclude
ineligible households from receiving approval, or being certified,
when the household applies for benefits. Certification targeting—providing
certification only to those households who are intended to be recipients
of program benefits—requires local program offices to obtain
household-specific information. Information such as income, household
size, and other household characteristics is used to determine if
a household is eligible. Certification typically lasts from 1 to
12 months, after which information is again required to determine
whether participating households continue to meet eligibility guidelines.
A local program office can obtain a household’s information
using various methods of increasing thoroughness, such as asking
the household, requiring supporting documents (such as pay stubs),
and using third-party verification (such as employers) to ensure
the authenticity of the documents. An increase in the thoroughness
of the application process can be expected to enhance certification
targeting by reducing inaccuracies and increasing compliance with
eligibility guidelines.
Denying program benefits to ineligible households helps maintain
public confidence in USDA food assistance programs. However, increased
thoroughness comes with a price: increased burden—on both ineligible
and eligible households—and increased administrative expense.
A high level of burden may deter some households from applying for
benefits for which they are eligible. Policymakers must strike a
balance between certification targeting, on the one hand, and both
program accessibility and administrative expense on the other.
Operational targeting seeks to minimize administrative and
food procurement expenses. At the extreme, the administrative cost
of certifying households could be slashed by closing all but one
of the local program offices in an entire State. Likewise, administrative
expenses could be saved if nothing—not even an application—was
required for a household to receive program benefits. Of course,
eliminating the application would negate certification targeting.
And widespread office closures would greatly inconvenience many
eligible households and diminish their program access and participation,
thereby countering the goals of the program. Thus, there can be
tradeoffs between operational targeting and other desirable outcomes.
Operational Targeting and WIC Cost Containment
The mission of WIC
is to safeguard and improve the health of low-income pregnant, breastfeeding,
and postpartum women and infants and children up to age 5 who are
at nutritional risk. To achieve its mission, the program provides
a package of supplemental foods, nutritional education, and health
care referrals.
WIC State agencies adopt various cost-containment practices to
reduce food costs. The practices include:
• Limiting food item selection according to brand, package
size, form, or price (for instance, requiring purchase of least-cost
items).
• Limiting authorized food vendors to those with lower food
prices.
• Negotiating rebates with food manufacturers or suppliers.
Some observers have raised concerns that if cost-containment policies
are overly restrictive, then WIC participants’ access to and
consumption of prescribed foods may be reduced. Others have questioned
whether cost-containment practices save enough in food costs to
offset their additional administrative costs.
In 1998, Congress instructed ERS to assess the effects of WIC State
agencies’ cost-containment practices (other than manufacturers’
rebates on infant formula) on such outcomes as program costs, participant
satisfaction, and the purchase and consumption of prescribed WIC
foods. The study was conducted in six States (California, Connecticut,
North Carolina, Ohio, Oklahoma, and Texas) selected to represent
various combinations of cost-containment practices.
The study found that cost-containment practices can be inexpensive
to operate. In the four States with substantial food item restrictions,
administrative costs for the cost-containment practices averaged
less than 1.5 percent of estimated food package savings.
Annual estimated cost savings for a State depend on the State’s
particular cost-containment practices and the size of its WIC caseload.
California and Texas, two States with large WIC caseloads, had annual
cost savings estimated at $40 million and $66 million, respectively,
while Oklahoma had annual savings estimated at $6.7 million. Of
the six States, Ohio had the smallest cost savings of $148,000,
an outcome that is consistent with Ohio’s limited restrictions
on the food items WIC participants can purchase.
What were the effects of cost-containment practices on WIC participants?
Most surveyed WIC participants reported that they were satisfied
with the available brands of food and package sizes approved for
WIC by their State. There were exceptions, however. In Connecticut
and Ohio, where purchases of cheese are restricted to the least
expensive brand available in the store, WIC participants reported
lower levels of satisfaction with allowed cheese brands than participants
in the four other States. In Oklahoma, cereal purchases are restricted
to store- and private-label brands, which reduced participant satisfaction
with allowed brands in that State. Nevertheless, when overall satisfaction
levels in States with restrictions are compared with levels in the
nonrestrictive States, the differences are small and statistically
insignificant. Moreover, according to survey responses, cost-containment
practices did not diminish the amounts of monthly allotments that
WIC participants purchased or consumed.
The single largest cost-containment strategy in WIC is its infant
formula rebate program. Although WIC encourages mothers to breastfeed,
a majority of participating infants receive infant formula through
WIC. WIC State agencies typically use competitive bidding to award
a contract to a single manufacturer of infant formula for the exclusive
right to provide its product to WIC participants in the State. The
contract-winning manufacturer is then billed for the amount of the
rebates on the formula issued for WIC infants. In fiscal year 2001,
infant formula manufacturers provided States with $1.5 billion in
rebates, an amount that supports 28 percent of WIC participants.
To support the same number of WIC participants in the absence of
these rebates would require an equivalent increase in taxpayer expenditures.
Benefits Targeting in CACFP
The aim of the Child
and Adult Care Food Program (CACFP) is to promote healthful
meals in child and adult care settings. In the child care portion
of CACFP, the program reimburses participating family child care
homes and child care centers for meals and snacks. In the mid-1990s,
Congress raised concerns about the types of families most often
served by CACFP family child care homes. In 1995, only 21 percent
of meal reimbursements to CACFP child care homes were for meals
served to low-income children. A meal served in CACFP child care
homes received the same reimbursement rate irrespective of the child’s
family income.
To target program benefits more intensely on low-income children,
Congress lowered the per meal subsidies, effective in mid-1997,
on meals generally served to higher income children (see Tiering
at a Glance). This tiering system represents a compromise between
a single-rate system and a system that can create a potential barrier
to participation by requiring determination of family income on
a child-by-child basis. Before 1980, CACFP required family child
care providers to document each family’s income. Care providers
complained that the determination of family income was burdensome
and too invasive for their relationship with the families whose
children they served. Few family child care providers participated
in CACFP prior to 1980, possibly due in part to this factor.
In 1996, Congress asked ERS to examine the effects of reduced meal
reimbursements for CACFP family child care homes. The study found
that, as intended, the subsidy reduction did concentrate benefits
more intensely on low-income children, improving benefits targeting.
The share of CACFP meal reimbursements to CACFP child care homes
for meals served to low-income children more than doubled, from
21 percent in 1995 to 45 percent in 1999. Over the same period,
CACFP child care homes served 80 percent more low-income children
and 23 percent fewer higher income children. Between 1997 and 1999,
following the subsidy reduction, the number of family child care
homes reimbursed at the lower Tier 2 rate fell, while the number
of family child care homes receiving the higher Tier 1 rate increased.
According to the study, in 1999, Tier 2 CACFP child care homes
spent on average $91 per week on food—$19 less than Tier 1
homes. Also, despite this difference in food expenditures, the subsidy
reduction apparently had little if any effect on the array of meals
or snacks (breakfast, lunch, etc.) offered by a typical Tier 2 home.
To qualify for reimbursement, a CACFP meal must contain specified
combinations of four meal components: milk; fruit, vegetables, and
juice; bread (and bread alternatives); and meat (and meat alternatives).
The study found that the subsidy reduction did not reduce compliance
with meal component requirements. The study also compared the nutritional
content of the foods served by Tier 2 homes in 1999 with the nutritional
content of foods served by similar CACFP homes in 1995. In most
respects, there were no significant differences. However, meals
served in Tier 2 homes in 1999 contained more calories than meals
served in 1995.
Tiering at a Glance
For child care homes participating
in the Child and Adult Care Food Program (CACFP), Congress
replaced a single-rate reimbursement system with a two-tiered
system that took effect July 1, 1997. Under the tiering
system, the rates for Tier 1 meals, meant to be served
generally to low-income children, were similar to the
pre-existing rates, while the rates for Tier 2 meals,
meant to be served generally to higher income children,
were reduced. The Tier 1 and Tier 2 rates that took
effect in mid-1997 were, respectively, $0.90 and $0.34
for breakfast; $1.65 and $1.00 for lunch/supper; and
$0.49 and $0.13
for snacks.
In fiscal year 1999, reimbursements to Tier 2 homes
averaged $177 per month but would have averaged $326
per month if those homes had received Tier 1 rates for
those same meals. Tiering lowered meal reimbursements
to Tier 2 homes by 46 percent on average across meals,
or by about $33 per week per home.
Congress established two main criteria by which a meal
qualifies for Tier 1 reimbursement rates:
• A CACFP home located in a low-income
area qualifies for Tier 1 rates on all meals (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); or
• A CACFP home operated by a low-income care provider
qualifies for Tier 1 rates on all meals.
In addition, a CACFP home that is classified as Tier
2 (it does not meet either of the above criteria) can
receive the higher Tier 1 rates on meals served to low-income
children.
The current reimbursement system is not designed to
prevent totally the payment of a Tier 1 rate for a meal
served to a higher income child. By the first two criteria
above, a home in a low-income area or operated by a
low-income provider receives Tier 1 rates on all meals,
including those served to higher income children. Nevertheless,
the tiering system has concentrated program benefits
on children from low-income families relative to the
single-rate system it replaced.
Lessons and Cautions
In striving to make efficient use of taxpayer dollars in the design
and administration of USDA food assistance programs, policymakers
pursue various types of targeting. WIC cost-containment practices
implemented by six States were relatively inexpensive to administer
and reduced food costs. Operational targeting was improved with
few adverse impacts on WIC participants. The subsidy reduction in
CACFP meal reimbursements targeted program benefits more intensely
on low-income children, as intended. Benefits targeting was improved,
with little if any effect on the components or nutritional content
of meals served in the reduced-subsidy homes.
Caution should be exercised when using a study’s results to
make inferences about possible effects of related policies. What
would happen if WIC cost-containment practices in restrictive States
were made yet more stringent? Or what would happen if CACFP meal
reimbursements were made yet smaller for Tier 2 homes? It is possible
that negative outcomes would be more severe than those reviewed
here. Moreover, for cost-containment practices to work, they need
to be managed well by State officials. The success of cost containment
in the six study States was the result of ongoing efforts by the
States to find those restrictions that both reduced food costs and
were acceptable to participants. Therefore, even if a particular
cost-containment practice improves operational targeting in one
State, a different State may have a different experience.
Careful research can address issues surrounding the magnitudes
of desired outcomes and adverse side effects. Sometimes a negative
effect is sufficiently small that—once research obtains a measure
of the effect—policymakers may decide it can be ignored. On
the other hand, if negative consequences turn out to be large, the
response may be to recalibrate policy if policymakers deem the benefits
of such adjustment exceed the costs. Indeed, the States in the WIC
cost-containment study engaged in a dynamic process of assessing
cost savings and participant responses. Crafting food assistance
policies is an ongoing process involving the affected groups, policymakers,
and researchers who help to measure the sizes of the consequences
at stake.
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