In this informative article, Professor Deborah Widiss guides us through a recent trend in “red” states towards authorizing employer-sponsored family leave insurance.
Unlike state paid family leave laws—which “mandate paid leave for new parents,” (P. 8), and are typically funded through a payroll tax—a privatized model permits insurance companies to offer paid family leave insurance policies to employers. Employers can then choose whether to offer coverage to their workers.
Widiss explains that paid family leave insurance is a relatively recent phenomenon. Because “the insurance market is tightly regulated,” state legislatures must first “authorize sale of the [insurance] product to individuals or companies within its jurisdiction.” (P. 16.)
In 2022, Virginia was the first state to authorize paid family leave insurance, followed by New Hampshire, Vermont, Florida, Tennessee, and Arkansas. Notably, these laws have attracted bipartisan support. Republicans present them as a choice-driven free market solution—what Vermont governor Phil Scott characterized as a “win-win-win” — while Democrats view “the opt-in approach as a step forward, even if they might prefer a truly comprehensive plan.” (P. 33.)
Professor Widiss provides a measured critique of the private insurance model. She acknowledges that they represent an improvement over the status quo, since many small businesses cannot afford to offer paid leave to their workers. However, a private insurance model can produce regressive results, where “employer take-up may be low, and…lower-paid and part-time workers will be particularly unlikely to receive these benefits.” (P. 6.)
Widiss argues that paid family leave mandates are preferable to a private model. Mandates make leave available to “virtually all workers” in those states. The laws also fund generous benefits at a lower cost than optional private insurance plans because they are funded through a modest payroll tax “typically ranging from 0.1 percent to about 0.4 percent of wages.” (P. 12.) This structure enables substantial wage replacement, which is particularly important for low wage workers who cannot afford to live on a fractional portion of their prior earnings.
However, in states where a paid leave mandate may be politically infeasible, Widiss shares some useful recommendations for policymakers considering the private insurance model. She argues that all such insurance policies should be required to offer a “meaningful amount of time off” for covered workers, rather than the Florida approach, which “might provide as little as just two weeks a year.” (P. 25.) She also recommends rules requiring private policies to offer wage replacement “sufficient to allow low-wage workers to take a reasonable amount of time off.” (P. 26.)
Employers should also be required to cover the entire cost of the insurance policy to reduce adverse selection and avoid “complicated questions around open enrollment policies.” (P. 28.) Lastly, Widiss recommends that policies cover a wide range of possible caregivers beyond a “child, parent, and spouse,” to include, for example, “nonmarital partners, siblings or grandparents.” (P. 29.)
Overall, this article is a nice contribution to the literature, with useful advice for policymakers on a topic that is increasingly gaining traction at the state level. I particularly appreciated Widiss’ decision to focus on innovation at the state level, which is where most of the legislative action is happening these days. It was also nice to learn about a practical reform that has gained bipartisan traction in red states.
Even if this privatized approach is not optimal, it is at least, as Widiss notes, “a viable step forward that can offer some real benefits to some new parents” and other family caregivers.
