Paid family leave in the United States

  • Print
  • Connect
  • Email
  • Facebook
  • Twitter
  • LinkedIn
  • Google+
By Paul L. Correia | 25 May 2017

President Donald Trump has proposed a budget for 2018 that includes a paid family leave insurance program for U.S. workers. The program would provide income replacement benefits to employees who take leave from work to care for their newborn or newly adopted children. It would allow employees to take up to six weeks of paid leave, although states will have flexibility in designing the benefits and could extend the maximum leave period in their jurisdictions. The leave programs would be implemented and administered through the unemployment insurance systems in each state.

California, New Jersey, and Rhode Island have already adopted their own programs, and next year paid family leave will be provided in New York. These statutory leave programs not only offer income benefits to employees who stay home to care for newborn or newly adopted or fostered children, they also provide benefits for leaves taken to care for seriously ill family members. In Rhode Island, employees are eligible for up to four weeks of paid leave, whereas in New Jersey and California they are eligible for six weeks, and in New York they will be eligible for up to 12 weeks. The benefit amounts are different in each state, ranging from 55% of income in California to 67% of income in New Jersey and New York.

The statutory leave programs differ in important ways from the federal Family and Medical Leave Act (FMLA). FMLA only covers groups of 50 or more employees and it provides unpaid rather than paid leave. Also, FMLA guarantees job protection to employees on leave as do the programs in Rhode Island and New York, but the programs in California and New Jersey do not (although some workers in those states still qualify through FMLA).

Under the president’s proposal, states would be allowed to design the paid leave program for their own jurisdictions as long as the benefits meet minimum standards. This means some states may have a lot to think about to prepare for a new insurance program, such as the funding methods, administration, and the specific benefit design features.

Although the funding methods for paid family leave have not yet been specified, states will most likely determine the exact funding mechanisms themselves. These mechanisms could vary from state to state, and the options may include funding through general tax revenues, a specific new tax, employer-paid premiums, or employee-paid premiums. In the states that have already adopted a paid leave program, the benefits are funded through employee contributions. The contribution levels are established by state insurance departments. In California, the 2016 contribution rate for disability insurance and paid family leave was 0.9% of payroll, and in Rhode Island it was 1.2% of payroll. Most of the time, employee contributions are a small percentage of payroll that gets deducted from the employee’s paycheck every pay period.

The White House has estimated the cost of the program to be approximately $25 billion over a 10-year period. States may have challenges in estimating the cost of paid family leave in their own jurisdictions because of the lack of experience to draw on. FMLA experience may not be a reliable source for analyzing leave utilization trends because FMLA coverage is limited to groups of 50 or more employees and it provides unpaid rather than paid leave. The development of estimated costs for New York paid family leave has been a major effort in 2016 and 2017, coordinated by the state’s Department of Financial Services with input from the insurance industry.

The specific methods for administering paid leave benefits will also need to be considered by U.S. states if a program is to be adopted at a national scale. In Rhode Island, paid family leave is provided through a state fund. In California and New Jersey, the coverage is provided almost entirely through state funds, although employers can apply for private coverage in some circumstances. In New York, employers will have the option to either purchase insurance from the state fund or from a private insurer, or to self-insure the coverage.

In some ways, California, New Jersey, New York, and Rhode Island were in good positions to adopt paid family leave programs because they had already adopted short-term disability insurance programs for workers (Hawaii and Puerto Rico are the only other jurisdictions with statutory disability benefits). The disability and paid leave programs have been coordinated in those states to provide coverage during maternity leaves, which usually begin as a disability claim before transitioning to paid family leave. Generally speaking, approximately one-third of disability claims are for maternity and over three-fourths of paid family leave claims are for bonding with newborn or newly adopted children. Because the disability insurance and paid family leave claims are closely connected, U.S. states that do not have a statutory disability program may have greater challenges in administering paid family leave.

There are many open questions on paid family leave in the United States. If it were to become a national program, states will likely look to California, New Jersey, Rhode Island, and New York for insight into design, funding, and administration. Despite differences in the existing statutory leave programs, there are some similarities that can help states develop a better understanding of leave dynamics should the need arise.

Paul Correia, MAAA, FSA, CERA, is a principal and consulting actuary with Milliman, based in Portland, Maine.