Trump administration reverses childcare subsidy policy over fraud concerns

WASHINGTON – The Trump administration is moving to revoke a Biden-era regulation designed to stabilize the U.S. childcare industry, citing a need to crack down on potential fraud.

The previous rule required states to issue subsidy payments based on the number of children enrolled in a program rather than actual daily attendance. This policy provided a financial safety net for providers serving low-income families, where attendance often fluctuates due to illness or extreme weather.

However, the Department of Health and Human Services (HHS) argued that the current policy undermines accountability and facilitates fraud. The decision follows specific allegations of subsidy fraud recently reported in Minnesota.

Childcare providers warned that returning to an attendance-based payment system will create revenue unpredictability. They say the shift could make it difficult to cover operational costs and meet payroll for staff.

Policy advocates expressed concern that focusing on isolated fraud cases could jeopardize progress in an already fragile industry.

The Trump administration’s recent policy shift marks a fundamental philosophical realignment in social policy, prioritizing program integrity and the prevention of fraud over the operational stability of essential services. Politically, the move is easily defensible: a platform built on cutting waste and abuse remains a perennial winner with the electorate. However, a closer analysis reveals a complex economic trade-off that could have far-reaching consequences.

The outgoing Biden administration’s policy was designed to address a systemic market failure. Childcare centers in low-income communities operate on razor-thin margins and are highly vulnerable to revenue volatility. By shifting to enrollment-based funding, the previous policy treated childcare subsidies not merely as a fee for service, but as an infrastructure investment. This provided centers with the predictable cash flow necessary to cover fixed costs and payroll—standardizing the sector to match the private-pay model used by affluent families, who pay monthly tuition regardless of their child’s daily attendance.

Rescinding this policy under the banner of fiscal accountability risks a "domino effect" across the industry. Providers in underserved areas, stripped of financial predictability, may be forced to shutter, causing a contraction in the supply of quality childcare. Such a decline would directly impede the ability of low-income parents—disproportionately women—to remain in the workforce, potentially dragging on overall labor participation rates. While program fraud is a legitimate concern, policy critics argue that it can be mitigated through targeted audits and spot inspections, rather than by dismantling the very funding mechanism that stabilizes the childcare ecosystem.

This policy shift could directly impact Vietnamese-American small business owners in the childcare sector. Many of these entrepreneurs, particularly Vietnamese women, operate home-based daycares or small centers that serve as vital resources for their local communities. For those whose businesses rely heavily on subsidized families, a return to attendance-based payments would trigger major financial instability, making it difficult to manage budgets or meet payroll. At the same time, low-income Vietnamese families who depend on these subsidies may find themselves with fewer childcare options if the centers in their neighborhoods are forced to close.