The Orphan Tax: How States Hired Contractors to Mine Foster Children's Social Security Checks — and Then Spent the Money on Themselves

For at least four decades, state child welfare agencies have run a quiet revenue operation inside the foster care system: they comb their own case files for children whose parents have died or who have a qualifying disability, apply to the Social Security Administration to be named that child's "representative payee," take the resulting monthly checks, and spend them reimbursing the very foster care the state is already legally obligated to provide. The children are almost never told. Neither are their parents, their attorneys, or the juvenile court judges supervising their cases. In 2020 alone, 42 states reported using $251 million in children's Social Security, SSI, survivor, VA, and child support money to offset their own costs, according to a Child Trends survey. At least ten states hired for-profit contractors — Maximus and Public Consulting Group chief among them — and paid them on a per-approval basis to find more eligible children, turning a disability determination into a billable event. The practice was blessed by a unanimous Supreme Court in 2003, has never been audited at scale by either agency responsible for it, and is invisible in every federal child welfare dataset that exists.

How a Grieving Child Becomes a Line Item

The mechanism is not a loophole so much as a default setting.

When a minor is entitled to Social Security benefits — Old-Age, Survivors, and Disability Insurance (OASDI) because a working parent died or became disabled, or Supplemental Security Income (SSI) because the child is disabled and poor — SSA does not send the money to the child. It appoints a representative payee to receive and manage it. Federal regulations at 20 C.F.R. §§ 404.2035 and 416.635 obligate that payee to use the funds "for the use and benefit" of the beneficiary, to stay in contact with the child, and to account for every dollar. Sections 404.2045 and 416.645 require the payee to conserve or invest whatever isn't currently needed.

SSA maintains a preference order for who should serve. A parent, relative, or friend with custodial interest ranks high. A public or nonprofit agency serving as guardian ranks lower. But SSA will appoint whoever applies and appears suitable — and in foster care, the entity with the case file, the child's Social Security number, the death certificate, and a staffed revenue-recovery unit is the state agency itself. The child, who may be seven or fourteen and has just lost a parent, is in no position to apply.

The second regulatory hinge is the definition of "current maintenance." Sections 404.2040 and 416.640 define benefits used for a beneficiary's food, shelter, clothing, medical care, and personal comfort items as, by definition, used for that beneficiary. A state that hands a foster parent a board payment and then reimburses itself from the child's survivor check can say — accurately, under the text — that it spent the money on the child's food and shelter.

That argument went to the Supreme Court. In Washington State Department of Social and Health Services v. Guardianship Estate of Keffeler, 537 U.S. 371 (2003), a certified class of Washington foster children argued the state's self-reimbursement was a creditor-style seizure barred by the Social Security Act's anti-attachment provision, 42 U.S.C. § 407(a). The Washington Supreme Court agreed. On February 25, 2003, the U.S. Supreme Court reversed unanimously. The state's practice, the Court held, was not "execution, levy, attachment, garnishment, or other legal process." It was lawful.

Ten years later the Maryland Court of Appeals confronted the same practice in In re Ryan W., 76 A.3d 1049 (Md. 2013). A local department of social services had collected Ryan W.'s OASDI survivor benefits for three and a half years after both his parents died, against roughly $220,000 the state said it had spent on his care. The department never asked the juvenile court, never told Ryan, and never told his lawyer. The court upheld the department's discretion to apply the money to reimbursement — but held that it was required, at minimum, to give the child and his counsel notice that it had applied for and received his benefits. That a state appellate court had to order notice in 2013 tells you what the norm was.

The structural objection is the double-dip. Title IV-E of the Social Security Act already reimburses states for the maintenance costs of eligible foster children — $9.7 billion in estimated federal Title IV-E support in FY2024, including roughly $5.1 billion in direct foster care reimbursement in FY2023. Foster care is a public obligation that the state assumed when it removed the child. A foster child with no dead parent and no disability pays nothing. A foster child whose father died pays for her own placement out of his work record.

The Money, by Name and Number

The national totals have been estimated repeatedly and always land in the same range:

• $251 million — 42 states, 2020, per Child Trends (includes SSI, SSDI, survivor benefits, VA benefits, and child support).
• $165 million — 2018, from the NPR/Marshall Project investigation, which found at least 36 states and the District of Columbia systematically combing case files for eligible children.
• ~$200 million/year — the 2011 Children's Advocacy Institute and First Star report The Fleecing of Foster Children.
• $250 million-plus/year — University of Baltimore law professor Daniel Hatcher's estimate in The Poverty Industry, whose 2006 article Foster Children Paying for Foster Care first forced the issue into public view.

Roughly 27,000 to 30,000 children in foster care receive Social Security or SSI — just over 5% of the foster care population. Survivor benefits for a child who loses a working parent average about $1,100 a month. Over a four-year placement, that is more than $50,000 — the difference between aging out into a car and aging out into an apartment.

The state and county numbers are where it stops being abstract:

• Pennsylvania: Since 2020, at least 1,300 children had at least $15.7 million taken, per a Resolve Philly/Spotlight PA analysis of four years of data from 47 counties. Nearly every county participated. More than a quarter of the agencies could not prove the money they received for a specific child was actually spent on that child. Only five counties could show they had directly notified the youth or family.
• Philadelphia: The city Department of Human Services took nearly $5 million in children's benefits between FY2016 and FY2020 and swept it into the city's $5 billion general fund, with no process for notifying children or their lawyers. City Council banned the practice in 2022. As of December 2023 reporting, DHS was still taking roughly $1.3 million a year from 380 foster children.
• Los Angeles County: $5.4 million in 2021, drawn from about 600 children in any given month. Kern County: $313,000 from 56 youth. San Diego County: about $137,000 from 13 youth in FY2021-22. California does not track how many of its roughly 50,000 foster children have had funds withheld.
• Idaho: Between July 2021 and May 2025, 326 foster children were entitled to Social Security payments; the state used nearly $2.3 million of it to offset care costs.
• Nebraska: More than $2.6 million in a single year (2020).
• Wisconsin: More than $10 million annually taken from foster children and their parents through combined federal benefits and child support collection.
• South Carolina: 301 children currently affected; the state Department of Social Services will request $1.6 million in replacement appropriations to stop.

The Contractors: Paid Per Disabled Child Found

The part of this story that moves it from bureaucratic inertia to designed extraction is the contracting layer.

Maximus, Inc. — a publicly traded government services firm — ran what it called "SSI Advocacy" projects in at least seven states: Alaska, California, Florida, Iowa, Nebraska, South Carolina, and Wisconsin. Maximus sales material pitched the arithmetic directly: 15% to 20% of foster youth are likely eligible for Social Security benefits, but probably no more than 10% are signed up. The gap is the product. One Maximus document described the goal as "an increased SSI eligibility rate among foster care population increasing revenue to offset costs of foster care placement."

Alaska's 2013 procurement made the incentive explicit: the state wanted at least 50 new foster youth per year signed up for Social Security, and would pay Maximus roughly $1,600 from state funds for every child SSA approved. Projected state take: more than $400,000 a year. Maximus won the contract. In the same period, a private firm Alaska used described acquiring benefits from people with disabilities as "a major line of business." Malerie Shockley, an Alaska Native young woman featured in the NPR/Marshall Project reporting, aged out of care and became homeless without ever knowing the state had been cashing disability checks issued in her name. Maximus has also held large child welfare contracts independent of this work, including a $21 million Wisconsin child welfare contract rebid.

Public Consulting Group (PCG) brought analytics. In a 2012 status report to Florida, PCG discussed using data-mining and predictive analytics to "target" and "score" children in order to maximize Social Security dollars. A 2010 proposal to Kentucky stated that "all likely foster care candidates are scored and triaged for SSI application." PCG submitted comparable material to Delaware in 2018. In Missouri, PCG earned about $2,300 for every family it shifted from state assistance to federal SSI — a cost shift that saved the state as much as $80 million while raising federal outlays.

Read the incentive structure plainly. A contingency-fee contractor earns nothing when a child is found ineligible and earns a fee when a child is adjudicated disabled. The contractor does not treat the child, house the child, or represent the child. It scores the child. The federal disability determination — a finding that is supposed to be a clinical and functional judgment about a human being — becomes the trigger for a commission. Nothing in the Social Security Act, in Title IV-E, or in SSA's payee regulations prohibits this arrangement.

Who Was Supposed to Be Watching

Two federal agencies have jurisdiction, and the gap between them is where this lived.

HHS/ACF collects AFCARS — the Adoption and Foster Care Analysis and Reporting System — case-level data on every child in foster care in the country. AFCARS records removal reasons, placement settings, permanency goals, race, age, and dozens of other elements. It contains no data element for whether a child receives Social Security or SSI, who the representative payee is, or what happened to the money. There is no federal number. The $251 million figure exists because a nonprofit research organization, Child Trends, asked states voluntarily.

SSA oversees representative payees, but its oversight instrument is a self-reported annual accounting form. When investigators have actually checked the underlying records, the results have been poor. An SSA Office of the Inspector General audit released August 9, 2023, examining children in Maryland's foster care programs, found 24 children served by unsuitable payees, 16 of whom had misused the children's benefits, with an estimated $954,000 already misused and roughly $1,073,000 at risk over the following twelve months absent correction. An earlier OIG report was titled, flatly, Potential Misuse of Foster Children's Social Security Benefits.

Even the data plumbing failed. Congress in 2018 directed more information sharing between SSA and state foster care agencies. GAO-21-441R, issued June 3, 2021, found that only 31 states had signed data exchange agreements and just 14 were actively sharing data as of April 2021 — and that among that small compliant subset, SSA was already identifying a large number of incorrect representative payees.

Neither SSA nor HHS has ever conducted a comprehensive audit of a state child welfare agency functioning as representative payee for tens of thousands of children. The Pennsylvania finding — that more than a quarter of county agencies could not document that a specific child's money was spent on that specific child — is the closest thing to a real accounting anyone has produced, and it was done by two nonprofit newsrooms with a public records request.

The Children's Advocacy Institute graded all 50 states and D.C. in its April 2024 report Foster Care or Foster Con?: Preserving the Federal Benefits of America's Most Vulnerable Children. Two jurisdictions earned an A (Arizona and the District of Columbia). Two earned a B (New Mexico, Oregon). Three earned a C (Illinois, Maryland, Washington). Forty-four earned an F.

The Break: 2024 to 2026

The wall started cracking in late 2024, when SSA and the Children's Bureau jointly published a Request for Information on the Use and Conservation of Social Security Benefits and SSI Payments That Representative Payees Receive for Beneficiaries Residing in Foster Care (89 Fed. Reg., November 1, 2024; comments closed December 2, 2024). Representatives Danny K. Davis (D-IL), Don Bacon (R-NE), and Jamie Raskin (D-MD) — who had introduced the Protecting Foster Youth Resources to Promote Self-Sufficiency Act (H.R. 9654, 117th Congress) and the Protecting Foster Youth Resources Act (H.R. 10478, 118th Congress) — publicly thanked the agencies. Neither bill has become law.

The acceleration came from an unexpected direction. Alex J. Adams, who as Idaho's Health and Welfare director had ordered his own agency to stop taking foster youths' survivor benefits, was confirmed October 7, 2025, as HHS Assistant Secretary for Family Support, running ACF. In December 2025, ACF formally called on governors and legislatures to end what it branded the "orphan tax."

States moved fast, and across party lines:

• Nebraska — Gov. Jim Pillen signed an executive order in January 2026 barring state health officials from seizing foster youths' survivor and disability benefits.
• Michigan — Gov. Gretchen Whitmer signed legislation on July 21, 2026, originating with Rep. Kathy Schmaltz (R-Jackson), requiring at least 50% of federal benefits be conserved for foster youth ages 14–17; effective October 2026.
• Oklahoma — became the 30th state on July 15, 2026.
• South Carolina — Gov. Henry McMaster announced on September 1, 2026, that SCDSS will stop the practice for its 301 affected children and seek $1.6 million in replacement funding.

SSA issued "A Message to State Child Welfare Agencies" on June 16, 2026, reminding agency payees of their duty to maintain contact with beneficiaries and make individualized decisions about each child's benefits. By August 2026, 34 states and the District of Columbia had taken executive or legislative action; HHS has since cited 35.

Arizona remains the template: H.B. 2559, effective July 1, 2023, requires the Department of Child Safety to conserve all SSA funds in savings accounts owned by the child.

The Honest Objection — and Why It Doesn't Close the Case

The most substantive counterargument comes from Naomi Schaefer Riley of AEI, writing in City Journal: states are not "stealing." They are doing something a unanimous Supreme Court authorized, SSA's own regulations permit, and SSA's operating instructions describe. And there is a real fiscal consequence. When Arizona banned self-reimbursement without replacement revenue, the state simply spent less on foster care overall and hired staff to handle the new accounting.

That is the same objection Gov. Gavin Newsom made when he vetoed AB 1512 on October 8, 2023: "If counties are not permitted to use SSI to cover the cost of providing care to foster youth, the General Fund will need to offset those costs. This was not contemplated as part of the budget process." California was closing a $30 billion shortfall. The result is that the largest child welfare system in the country continued taking orphaned and disabled children's money. In Wisconsin, Senate Bill 990 (Sen. André Jacque, R-New Franken) died when the 2026 session ended, opposed by the county human services association on the grounds that counties would face shortfalls.

The objection proves less than it claims. It concedes that these children's benefits are functioning as general revenue — which is exactly the allegation. South Carolina answered it correctly by pricing the fix at $1.6 million and putting it in a budget request. The question is not whether foster care costs money. It is whether the ~5% of foster children who happen to have a dead parent or a disability should be the ones who pay for it.

What Would Actually Fix It

1. Add the data elements to AFCARS. Whether a child receives SSA benefits, who the payee is, the amount received, and the disposition of the funds. Without a federal number, no one can audit anything, and every reform is unverifiable.
2. Mandatory notice and counsel. In re Ryan W. required a Maryland agency to tell a child it had taken his dead parents' benefits. That should be a federal condition of Title IV-E funding, with notice to the child, the child's attorney or GAL, and the supervising juvenile court, before the payee application is filed.
3. Ban contingency-fee benefit-screening contracts. Screening foster children for benefits they are owed is good. Paying a vendor per approval is a bounty on a disability finding. Convert to fixed-fee.
4. Conserve, don't consume — and fix the resource trap. Conservation collides with SSI's $2,000 individual resource limit, unchanged since 1989: save too much and the child loses eligibility. Congress can solve this by mandating that conserved foster youth benefits go into ABLE accounts, special needs trusts, or statutorily excluded dedicated accounts under 42 U.S.C. § 1383(a)(2)(F). Current practice in some states runs the other way — Texas DFPS returns dedicated account balances to SSA rather than forwarding them to the youth.
5. Audit the payees. SSA OIG found nearly $1 million misused in a single state's foster program in 2023. A systematic audit of state agency payees, with findings published by state, is overdue.
6. Codify it. Every gain since December 2025 is executive action or state law. Keffeler still stands. Nothing in federal law prohibits any of the 15 remaining jurisdictions — or any state that just reformed — from resuming tomorrow under a different governor. The Protecting Foster Youth Resources Act exists. It has never received a floor vote.

Why It Matters

About 20,000 young people age out of American foster care every year. They are disproportionately likely to be homeless, incarcerated, unemployed, and uninsured within two years. A child whose father paid into Social Security for twenty years and then died has, sitting in a federal account with the child's name and Social Security number on it, the only inheritance he will ever leave — $1,100 a month, potentially tens of thousands of dollars by the time the child turns 18. It is the exact resource that determines whether a nineteen-year-old with no family has a security deposit or a shelter bed.

For decades, the state that removed that child from her home also removed that money, spent it on the placement it was already obligated to fund, hired a contractor on commission to find more children like her, told no one, recorded it in no federal dataset, and released her at eighteen with nothing. Thirty-five states have now stopped, most of them in the last nine months. None of them were required to.

Sources: The Marshall Project · NPR · NPR: Consultants · Keffeler, 537 U.S. 371 · In re Ryan W. (Md. 2013) · CRS R46975 · GAO-21-441R · SSA OIG, Aug. 2023 · Federal Register RFI, Nov. 1, 2024 · SSA, June 16, 2026 · ACF: 30 States · The Hill · CAI, Foster Care or Foster Con? · CAI/First Star, The Fleecing of Foster Children · Spotlight PA · Philadelphia Inquirer · CalMatters · AB 1512 veto letter · Idaho Capital Sun · Wisconsin Watch · Detroit News · SC Daily Gazette · Rep. Danny K. Davis · H.R. 10478 · Arizona DCS · City Journal (counterpoint) · Hatcher, The Poverty Industry