Why Middle-Class Kids Are Losing Out They are at greater risk of receiving unsafe day care, and 11% have lost health insurance since 1989. Here's what you can do about it.
By Karen Cheney Reporter Associate: Anamaria Wilson

(MONEY Magazine) – Americans like to say that our children are our most valuable asset. Yet children at all income levels are suffering from neglect--not just the children of poverty, as some would like you to think. The reason: We, as a nation, are not investing in them. Indeed, as unlikely as it may seem, the problems are often particularly acute among middle-class children--those in families with annual household income of roughly $30,000 to $70,000. After three months of reporting that involved interviews with more than 100 economists, parents, child advocates, health-care pros and day-care experts, MONEY has found that these kids, children from families like yours, are losing out in three ways:

They're languishing in poor-quality child-care programs. Studies show that middle-class kids are at greater risk of receiving care that is unsafe and inappropriate for their age in day-care centers than are lower-income or upper-income children. Even so, middle-income parents are spending an average 11% of their income on day care, compared with just 8% for college.

They're not getting an early start in education. Middle-class children don't qualify for most state-supported pre-kindergarten programs in public schools, which were created primarily to serve poor kids.

They're less likely to be covered by private health insurance than they were a decade ago. And unlike poor children, most do not qualify for Medicaid or for the Clinton Administration's new State Children's Health Insurance Program (CHIP).

We are not saying that kids are better off growing up poor. That, of course, would be nonsense. According to a recent report from the Annie E. Casey Foundation, a child-advocacy organization in Baltimore, poor children are more likely to be sick and underweight as toddlers; are less likely to be ready for kindergarten and grade school; face a much higher prospect of dropping out of high school; are more likely to become teen parents; face greater odds of being either a victim or a perpetrator of crime; and are much less likely to be economically successful as adults. The poor need all the help we can give them. But what's surprising and troubling is this: In our national debate about child welfare, we are paying far too little attention to the surprising neglect of middle-income children as well.

Take child care. The government subsidizes day-care programs for the children of poor working parents and also funds preschool education like Head Start. Consequently, these programs must meet strict federal standards. But there are no national standards to improve the quality of private child care and preschool education available to middle-class children. Instead, each state is allowed to set its own regulations. Naturally, quality varies immensely from state to state. In North Carolina, for example, the staff-to-child ratio is one to every 20 four-year-olds. In Connecticut, on the other hand, the ratio is one to every 10 four-year-olds.

Then there's health insurance for kids. Companies have ratcheted up the cost of family health insurance and, in some cases, dropped benefits for children altogether (see the charts above). Thus middle-class children, who typically don't qualify for public assistance, "go without checkups and needed medical care," says Ron Pollack, executive director of Families USA, a Washington, D.C. health-care consumers' organization.

Even if society as a whole continues to ignore its youth, there are resources available to help you invest wisely in your own children. On the following pages we'll explore three areas where middle-class kids are most vulnerable--day care, early education and health care--and tell you how to find, and afford, the best of each for your kids.

Day care. Finding high-quality day care is a challenge for parents of all incomes. But according to studies by the Families and Work Institute, a research group in New York City, and the National Institute of Child Health and Human Development in Bethesda, Md., middle-class kids end up at the greatest risk of receiving poor care in day-care centers. Says Ellen Galinsky, president of the Families and Work Institute: "Low-income kids are more likely to be in government-subsidized programs like early Head Start, which have to meet high federal licensing standards." At the other end of the spectrum, high-income parents can afford topnotch day-care programs for their children. "But the people in the middle," says Galinsky, "are more likely to get left out."

How bad is the care middle-class children receive? The 1995 "Cost, Quality and Child Outcomes in Child Care Centers" study, available from the University of Colorado, looked at 401 child-care centers in California, Colorado, Connecticut and North Carolina. It drew the following conclusion: In fully 91.5% of the nation's day-care centers for infants and toddlers under age 2 1/2, child care is mediocre to poor. In fact, only 8% of centers meet high-quality standards, including hiring teachers with training in early education and having at least one adult teacher for every three or four enrolled infants and toddlers.

The study also found that a staggering 40% of the nation's 93,000 day-care centers are dangerous for infants and toddlers. "We found uncovered electrical outlets and small objects on the floor that children could choke on," says Richard Clifford, an early-education researcher at the University of North Carolina-Chapel Hill who participated in the study. Furthermore, day-care providers rarely picked up the kids or talked to them. Unfortunately, middle-class parents, desperate for day care, seem blind to these defects. When surveyed about the quality of their children's day-care arrangements, parents almost always rated the care as good to excellent, even when it was mediocre to poor. One reason for this, experts say, is that many families still view child care more as babysitting than as a time to learn and grow.

To be sure, the cost of quality day care can be enormous. On average, child care costs about $4,000 a year per family, says Ellen Lubell, spokeswoman for the Child Care Action Campaign in New York City. But expect to pay about twice that to place your child in a center with appropriately trained teachers and low teacher-to-child ratios. This, in part, explains why middle-class parents spend more on child care than on college. The other reason is that the government subsidizes college more heavily than child care (as the charts on the facing page show). "And there's no such thing as a child-care loan," points out Roger Brown, CEO of Bright Horizons, a chain of child-care centers sponsored by employers. In other words, Uncle Sam waits until middle-class kids turn 18 and head off to college before giving them a hand.

Parents Judy and Ed Boyer, 37 and 41, of Prescott, Ariz. know firsthand what a financial strain day care can be. Their combined pretax income is $34,000--he's a college professor and she runs her own massage therapy business. They have enrolled their daughter Sylvia, 2, in a day-care center that costs $3,500 a year. "I'm not thrilled with the care at the center," admits Judy, "but I felt it was my only option." Meanwhile, to save on afterschool care for their son Joey, 9, the couple have arranged their work schedules so that one of them is available to pick him up and care for him after 3 p.m. every day (as shown on page 96). "It can be stressful, and it takes a lot of energy," says Judy. "Sometimes I wonder, 'Is Ed picking him up today or am I?' I always feel like I'm forgetting something."

One obvious solution would be for companies to pick up more of the day-care costs. Today, corporations subsidize less than 1% of day-care expenses for their employees by providing on-site centers, scholarships or subsidies to private centers (see the chart on page 98). But outfits that do provide this benefit find that it makes good business sense. For instance, SAS Institute, a software developer in Cary, N.C., subsidizes more than half of the day-care cost for children of its employees at two on-site centers and one off-site location. It cites its day-care program as one reason why its employee-turnover rate is 3.9% a year compared with the high-tech average of 20%.

Here's how you can get the best day care for your dollars:

Get referrals. The National Association of Child Care Resource and Referral (R&R) Agencies (800-424-2246) will give you the name of an R&R agency in your area that will supply you with the names of all day-care providers near your home. R&R agencies charge about $50 for a list of all the providers in your locality that meet your criteria. Be prepared to spend several months to find the best arrangement for your child. For instance, Polly Sorensen, 30, of Chandler, Ariz. interviewed 25 home providers before she found one she trusted to care for her daughter Erica, 3.

Look for these key quality indicators. First, you want a facility that is licensed by the state--if you don't see a license hanging prominently on the wall, ask for it. Ideally, the center should have one adult for every three to four infants and toddlers, four to six two-year-olds or seven to eight three-year-olds. Turnover should be low, with the staff sticking around for at least a year. (Your child will be happier if there's continuity.) Finally, when you visit either a home provider or a day-care center, take time to observe how the caregivers interact with children. "You want someone who is responsive," says Galinsky. "If the baby makes a noise, the provider should make a noise back."

Be alert for opportunities to cut your day-care cost. Try to get your child into a program subsidized in part by another organization, such as a college or hospital. For instance, Elizabeth Bye, executive director of the Trinity College Community Child Center in Hartford, which offers day care, says that she charges parents $75 less a week than it costs her to run her infant program. The reason: Trinity makes up the difference. If there isn't such a program in your area, inquire about discounts if you enroll a second child. This could save you around 10%.

Take advantage of flexible spending accounts or tax credits. If your employer offers a flexible spending account, jump at it--especially if you are in the 28% federal tax bracket or higher. You can pay as much as $5,000 of your child-care expenses with dollars deducted from your paycheck before taxes and Social Security. But if your employer doesn't provide an FSA, be sure to take advantage of the dependent-care tax credit (you can't use both), which allows you to deduct $480 a year for child-care expenses if you earn $28,000 or more annually. (For more on this, see the story on page 64.)

Education. Studies show that children, including middle-class kids, benefit from preschool training. In a 1995 report, the National Center for Education Statistics found that attending a preschool program improved a four-year-old's understanding and use of language, regardless of the child's economic background. A similar study conducted by the Brookline, Mass. public schools in conjunction with Boston Children's Hospital confirmed that both poor and middle-class children who participated in an early-education program demonstrated greater social skills in kindergarten; by second grade, they completed tasks more successfully, paid better attention to teachers and could finish assignments independently.

The government understandably allocates its scarce preschool funds to low-income kids; as a result, middle-income parents are caught between not qualifying for state-run programs and not being able to afford private schooling. In Boston, for instance, parents spend around $8,000 a year for private preschool--more than double the $3,111 average cost of tuition and fees for state residents at a public college.

Edwin and Jeannie Hooi of San Antonio tried to enroll their daughter Bianca, 4, in their local public school's pre-kindergarten program. Though Edwin, 39, makes a middling $41,000 a year as a high school history teacher and head basketball coach, that's $17,000 above the income cutoff for enrolling in the program. "Bianca was just crushed," says Jeannie, 38, a stay-at-home mom. "She was ready for school and had been looking forward to it." Since the $4,250 cost of a private preschool in San Antonio was too much for the Hooi budget, Jeannie is trying to teach Bianca by herself; mother and daughter spend several hours each day at home studying or in the public library (at left).

Not all families have a parent at home, though. Dual-career couples usually must send their kids to private preschool, and good ones are hard to find. According to the "Cost, Quality and Child Outcomes in Child Care" study, only 24% of preschool centers in the U.S. provide topnotch, developmentally appropriate care. Moreover, state educational standards vary. "It was clear that the quality of care was the lowest in North Carolina, where the licensing standards were the lowest," says Suzanne Helburn, professor emerita of economics at the University of Colorado-Denver and the study's co-author.

Fortunately, more states are moving toward universal pre-kindergarten programs, which offer free education to all four-year-olds. Georgia offers such a program, and last year New York State passed legislation for one. If your state doesn't offer universal pre-kindergarten schooling, however, there are steps you can take to ensure that your child gets into a first-rate preschool at a price you can afford:

As with day-care centers, visit as many preschools as you can and watch for telltale signs of quality. Research and referral agencies will also give you names of preschools. Make an appointment to stop by the schools and observe how the children are learning. "Your child will need to develop fine and gross motor skills, rather than just learn the ABCs," says Marta Rosa, executive director of the Child Care Resource Center in Cambridge, Mass. That means tykes should participate in a mix of activities--from playing on large playground equipment to putting small puzzles together and taking them apart. The child-to-teacher ratio should be eight or nine to one adult. Also, be sure the teachers have bachelor's degrees or other training in early-childhood education.

Look for creative ways to cut costs--like volunteering to help teach. Cooperative preschool programs, in which parents volunteer their help, are usually less expensive than regular day-care programs. For instance, Barbara Beaudette, 46, of Albuquerque spends two mornings every month at her son Ryan's preschool, where she helps children learn the alphabet and numbers. While it's tough working those hours into her day, Barbara says it's worth it: "My son is learning a lot." And owing to her volunteer time, the school costs her only $55 a month. Also keep in mind that, as with day care, if you are in the 28% bracket or more and your company offers an FSA, you can pay for your child's preschool with pretax dollars. Otherwise, claim as much as $480 a year per child as your child-care credit.

Pressure your state and local governments to provide pre-kindergarten classes. Start by writing local education administrators and urging them to provide universal pre-kindergarten. For example, the pre-kindergarten program in Washington, D.C. was originally designed for low-income kids. But business and community leaders formed the Committee on Public Education and presented the district education officials with a report recommending preschool for all kids, says Maurice Sykes, the deputy superintendent for early-childhood programs in the District of Columbia. As a result, in 1989 the program became open to all children.

Health insurance. The Census Bureau estimates that 10.6 million children, the most since 1987, were not covered by health insurance for the full year in 1996, and millions more were uninsured for shorter periods of time. These frightening statistics encouraged the government to enact CHIP, the widest expansion of children's health insurance since the adoption of Medicaid in 1965. It covers children in families with income up to 200% of the poverty line, or $32,000 for a family of four. But that means most middle-class children won't qualify.

One important health insurance provider to the middle class is corporate America. But since 1980, companies have been shifting more of the cost of covering dependent children to employees. For instance, to cover their whole family, individuals pay a painful 65% more to join a preferred-provider organization than they did in 1990 (see the chart on page 98). Even worse, one in four employees has no access to family coverage at any cost.

The burden is still heavier on self-employed families. Take, for instance, freelance writer Donna Gatnarek and her husband, lawyer Peter Leahy, both 48. They live in Bow, N.H., and in 1991 they bought insurance through the New England Business Association for themselves and their children, Heather, 14, and Sean, 10 (pictured on page 101). "But we found out that the rates were going to go up from $375 to at least $700 a month," says Gatnarek. Unable to pay $8,400 in premiums a year--17% of their $50,000 household income--Gatnarek decided she would drop coverage for Heather and Sean and buy a catastrophic policy for herself and her husband. The decision left her very uncomfortable. "I was worried that without health insurance, we'd postpone trips to the doctor for our children," she admits.

Fortunately, the family found a solution called New Hampshire Healthy Kids Corporation. Similar to a more extensive program in Florida called the Florida Healthy Kids Corporation, this privately funded program has pooled uninsured children into a group plan. The program opened enrollment in 1995, and today it insures 1,800 children. Parents pay a $67-a-month premium per child and $5 and $10 co-payments for doctors' visits and prescriptions.

Sadly, not many states have such programs. But if your children lack adequate coverage, here are some places to turn:

Ask your state health department about low-cost insurance. Department staffers may be able to direct you to insurers that sell low-cost plans for children in your area. For instance, Alyssa Burley, 28, of Cleveland was able to get insurance for herself, though not for her children, Sydnei, 2, and Christopher, 7, through her employer, the Urban League. Luckily, an insurance agent found a low-cost plan for her kids through Celtic Life Insurance Co., which offers plans for children in 33 states. The plan ranges in cost from $50 to $100 a month per child, depending primarily on the child's age and where he or she lives. To find out if Celtic Life is available in your state, call 800-477-7990.

Join an association group plan. Thousands of fraternal, professional and support organizations offer group medical coverage to members and their families. These plans are not cheap. For instance, the American Psychological Association offers its 151,000 members coverage that costs a family of four about $3,840 a year, but the deductible is $1,500.

Lobby your employer to provide coverage. Even if you don't have a union at work to help negotiate with your employer, you and other employees can still team up to encourage your company to offer family health insurance. The best way to do this is to go directly to your boss, says Peter Lee of the Center for Health Care Rights in Los Angeles. He suggests presenting your boss with three arguments. First, providing health insurance will give you a competitive advantage in recruiting and retaining good employees. Second, it prevents absenteeism. Third, it can reduce workers' compensation costs. If that doesn't work, hit them with this: By investing today in the generation of tomorrow, everybody profits in the long run.