US HHS Rescinds Rule Amid Child Care Fraud Concerns

In Washington, the U.S. Department of Health and Human Services (HHS) is reversing a Biden administration rule that didn’t require verification of children’s attendance at federally funded child care centers. This decision follows claims of significant fraud in the program.

On Monday, HHS officials announced the cancellation of federal guidelines that would restore “attendance-based billing.” They will also prevent states from prepaying child care centers and stop prioritizing existing contract facilities over those accepting parent vouchers.

Between 2021 and 2024, the Department of Children and Families allocated over $91.8 billion from the Child Care Development Fund (CCDF), which supports states, territories, and tribes in funding child care services.

During the peak of the COVID-19 pandemic in 2021, a staggering $56 billion was allocated to these centers.

Since the rule went into effect on April 30, 2024, it’s estimated that around $24 billion in taxpayer money may have been expended before the Trump administration sought to amend this provision.

“Congress designated these funds to help working families and ensure safe environments for children to learn and grow,” stated Secretary of HHS Robert F. Kennedy Jr. “Due to loopholes and fraudulent activities, these funds went to the wrong parties. We’re now correcting that and redirecting resources back to the families they were intended for.”

Last week, HHS froze further funding from the CCDF, which is the third-largest block grant program after Temporary Assistance for Needy Families (TANF) and the Community Development Block Grant (CDBG), until states can assert that no fraud exists.

Allegations of fraud have gained traction in Minnesota after a viral video by YouTuber Nick Shirley suggested that several child care centers received $111 million in federal funds despite showing little to no attendance.

Some reports following the video indicated that nearly half of the child care centers visited were indeed enrolling children, with some still actively accepting them at the time of his visit.

Democrats, both in Minnesota and nationally, have dismissed allegations of misconduct, while the Trump administration and Republican lawmakers are honing in on these claims, with congressional hearings scheduled for this week.

Before the announcement of the rule changes, Minnesota’s Democratic Governor Tim Walz declared he would not pursue a third term, citing concerns that his campaign would detract from addressing serious issues like fraud.

Over a decade ago, audits by the HHS Office of Inspector General found that millions had been improperly paid to child care centers.

In 2012 alone, Minnesota identified over $16 million in incorrect payments, but state officials did not disqualify any centers from future funding or report the violations.

With over $2.1 billion in CCDF and TANF funds received since he took office in 2019, Walz’s administration is under scrutiny.

According to audits, Minnesota was one of only nine states that exceeded a 10% threshold for improper payments, compelling the federal government to require inspections to ensure compliance.

Restoration of child care funding for Minnesota will depend on the state providing thorough evidence and conducting a comprehensive audit.

Prosecutors recently estimated that the state’s overall fraud, including federal funding, might total around $9 billion.

On Tuesday, three Republican lawmakers from Minnesota will testify in Washington concerning the fraud allegations.

“The warning signs are evident,” stated state Rep. Kristin Robbins. She emphasized that there are multiple services from one provider, with insufficient checks in place, making it easier to exploit the system.

The revised rules will undergo a 30-day public comment period before they become effective.

HHS has established a hotline and has received 245 fraud reports, illustrating the scale of the issue.

Alex Adams, assistant secretary for family support, noted, “Without oversight, fraudsters can claim funds for absent children. Families and taxpayers deserve assurance that their needs are met.”