The two-state family and medical leave plan proposed by the governors of New Hampshire and Vermont earlier this year has passed an early test: Insurance carriers appear interested in participating.
The plan announced by Gov. Chris Sununu and Vermont Gov. Phil Scott in January calls for the two states to jointly contract with an insurer to provide family and medical leave coverage to all state employees, at no cost to the workers. Municipalities, private employers and individuals would have the option to participate in the program by paying premiums.
If enacted, the plan would be the only one of its kind in the country. Four states and the District of Columbia provide paid family and medical leave themselves, and New York contracts with insurers for the coverage, but all of those programs are mandatory.
The voluntary aspect of the governors’ Twin-State Voluntary Leave plan raises the risk that employees who expect to take advantage of the benefits will sign up while those who don’t, opt out, thus creating a costly and risky pool for insurers that could lead to a death spiral of higher premiums.
Some experts are not convinced the model will work, but seven insurers responded to the states’ request for information by the Friday deadline and indicated their interest in providing the coverage, according to officials from both states.
“We’re getting quite laudatory compliments from the insurance carriers. I was quite pleased with the two I’ve had a chance to review,” said Michael Pieciak, commissioner of the Vermont Department of Financial Regulation. “We haven’t seen anything, at least in the two that I’ve reviewed, that has given us pause. If anything, they’ve greatly encouraged the effort.”
The seven companies that responded are Standard Insurance Company, The Hartford Financial Services, Total Administrative Services Corporation, ReedGroup, Anthem, MetLife and Sun Life Financial, according to Mac Zellem, Sununu’s budget director. Before going to a formal bidding process, the plan must still pass the legislatures — a significant obstacle given that there are Democratic majorities in both states that have proposed their own mandatory paid family leave plans.
Vasu Reddy, a senior policy counsel at the National Partnership for Women & Families and an expert on family leave policies, has been watching the various proposals in New Hampshire and Vermont. She worries that the premiums paid by nonstate employees under the Twin-State Voluntary Leave plan will ultimately become unaffordable.
“It’s definitely going away from what is already known to work, and I think it’s not likely to work by itself,” she said. “When it’s voluntary you run the risk of adverse selection. You would likely have a lot of people who don’t take part in the program until they know they are about to get pregnant or about to get surgery. When you have a mandatory publicly run fund, (costs) are spread out between people who need the benefit and people who don’t need it. … I guess I just don’t see how (costs) wouldn’t be passed on to the people paying the premiums” under the Twin-State plan.
Vermont and New Hampshire officials say they have consulted with insurers and have come up with several provisions specifically aimed at reducing that kind of adverse selection.
Companies, municipal governments and nonprofits that want to participate in the plan will pay lower rates, for example, if they can convince all of their employees to enroll. That would be an incentive for higher enrollment and create a less-risky pool. The states could also designate open enrollment periods to ensure that employees don’t just sign up when they intend to take the benefit.
Sununu’s administration is confident that the cost for employees who voluntarily opt in — potentially anyone besides state workers, who would automatically be enrolled — can be kept to less than $5 per week, said John Formella, the governor’s legal counsel.
“That’s the number we understand we need to be below in order for the plan to be affordable,” he said.
Employers could decide how to manage the burden of that cost — either paying it themselves, passing it all on to employees, or splitting it.
The premium cost for New Hampshire and Vermont’s state employees would be borne by the states. Pieciak said Vermont estimates that it would cost $2.5 million annually to provide family and medical leave coverage for its roughly 8,500 employees.
Zellem said it was too early to provide a cost estimate for New Hampshire’s 10,000 state employees, but that the governor’s office is “very confident in the affordability for the state and the availability of state resources to cover this plan” without raising additional revenue.
The biggest obstacle for the governors’ plan is in their legislatures.
The New Hampshire Senate passed its own mandatory family and medical leave plan last month and it will likely gain approval in the House.
The Senate bill would require that all employers provide 12 weeks of leave — for the birth of a child, caring for a sick loved one and other eligible reasons — at 60 percent of a worker’s wages. Employers could choose to self-insure or use the state’s program. They could cover the cost themselves or deduct a 0.5 percent payroll tax from their workers.
The New Hampshire Department of Employment Security estimates that the state would collect $169 million from employers and employees annually to pay for the program. Sununu has labeled that an income tax and recently vowed to veto it during a speech to business leaders.
His Twin-State plan would provide six weeks of leave at 60 percent of a worker’s wages. The direct cost to the state treasuries would be in the low millions — as indicated by Vermont’s $2.5 million estimate — but Democrats point out that those numbers don’t measure the cost to private sector employers or employees who would be paying the money directly to the insurance provider. That cost is still unknown and would depend on the rates agreed to by the insurance carrier that wins the contract.
“To make a representation that you can get paid family and medical leave insurance by not paying for it — in other words just paying for the state cost — is a Trumpian level lie,” Senate Majority Leader Dan Feltes, D-Concord, said of Sununu’s plan.
“The fact that insurance companies responded to it means nothing in terms of the impact for hard-working families and small businesses,” he added. “What it means is that this is a good giveaway to the insurance industry.”
The Union Leader has submitted a Right-to-Know request for copies of the seven insurance companies’ replies to the state.