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Capital Beat: Kelly, Sununu family leave plans out of national mainstream



Monitor staff
Saturday, October 27, 2018

New Hampshire’s gubernatorial race has found its sleeper issue, and it isn’t fading away.

Through television ads, meet-and-greets, and a high profile campaign stop with a rising national star, Democrat Molly Kelly has painted paid family and medical leave as a paramount issue for voters, and Gov. Chris Sununu is rushing to parry with promises of his own.

But even as both candidates trumpet their plans, neither Kelly nor Sununu has easy answers as to how they would stay solvent. And both candidates’ plans are firmly outside of the national mainstream.

There’s a spin for that: “the New Hampshire way.” It’s a phrase the two candidates have relied on. Molly Kelly and Chris Sununu say their plans are innovative models that set up a robust, statewide benefit without imposing new taxes.

But national policy analysts are more doubtful. Without stronger mechanisms to spread risk, the proposed programs could quickly become costly, they say.

“What New Hampshire (is considering), to make it seem less onerous on the employees, is to do it as an opt-out. That makes a lot of people nervous,” said Aparna Mathur, an economist at the American Enterprise Institute and a leading researcher of paid family leave, referring to Kelly’s plan.

She added: “If you have the option to opt out, then does that only leave the people who actually really need the leave that year to fund the entire system? It makes the entire system unstable.”

Individually, Kelly and Sununu have pushed back on that concern.

But let’s recap their approaches.

Molly Kelly’s plan

Kelly has endorsed House Bill 628, an earlier bill pushed prominently by Concord Democrats Mary Gile and Dan Feltes. That bill, which would exclusively cover the private sector, would create a $14.5 million state-run program to administer benefits and collect premiums. Every private sector employee would be auto-enrolled; they could have an opportunity to opt-out with a notarized form every year.

Participants would pay in 0.67 percent of wages, and could receive up to six weeks of benefits at 60 percent of pay up to a set cap.

Chris Sununu’s plan

Sununu unveiled his own plan earlier this month – sort of. The governor has been tinkering with the Insurance Department and Department of Employment Security to devise a plan that relies on the private sector, he said, though nothing has been finalized.

The plan would create a paid family and medical leave insurance market partially financed through state funds. How do you create a market where none exists? In Sununu’s case, it starts with a captive pool: the state’s 10,000 employees. All of them would be offered a paid family leave benefit through a private insurer like Aflac or Anthem, who would also extend those plans to any private sector employee who wanted to pay in a premium. Other carriers might follow suit with their own options, creating competition to keep costs low, the proposal goes.

Because the governor’s plan would rely on insurers, it would require no administrative start-up costs. But the cost of providing the benefit to the public sector would run around $2 million or $3 million a year, Sununu said.

Both plans take pains to avoid imposing mandatory fees or taxes on individual employees. And both have been marketed by the candidates broadly.

But neither plan is anything like what exists in other states – nor what’s being proposed at the federal level. Here’s an overview:

National plans

Rhode Island has a straightfoward employee payroll tax to fund a state-run system. California, New Jersey, and New York collect payroll taxes unless employers want to ignore the state plan and join or create a plan of their own. Hawaii’s system doesn’t have a state insurance fund, instead operating as an employer mandate.

Then there’s U.S. Senator Kirsten Gillibrand, a New York Democrat who recently campaigned alongside Kelly in Concord. Gillibrand has a national paid family leave policy: the “FAMILY Act,” which would impose a national, 0.2 percent payroll tax and provide a benefit of up to 12 weeks – a much different approach than Kelly’s.

Each state’s existing system varies, not least in the number of weeks of the benefit itself. But all include a key ingredient: Every company in the state must buy in in some fashion, broadening the number of contributors.

That, say some analysts, is key to their success.

“The essence of a social insurance program is that everybody is paying into it, and that’s why the costs are low,” said Mathur, who co-authored a recent white paper with Brookings AEI with a series of recommendations on ideal paid family leave systems.

For Mathur, it’s a matter of basic insurance economics. If only a few end up using the program, each participant pays more. And without making everyone pay in, adverse selection – the incentive to only sign up when you know you need the benefit – could drive up costs, Mathur said.

“If you start saying ‘only people who really need the leave have an option to pay into the program,’ then very quickly the social insurance aspect of it is lost,” she added.

Vicki Shabo, vice president at the National Partnership for Women and Families, a strong advocate for paid family and medical leave, has a similar stance.

“The plans we have been most supportive of are the ones that cover every worker and that use a payroll,” she said. “That model has shown to be sustainable.”

Meanwhile, Sununu’s proposal to tap into the private market , while creative, has one glaring issue, Mathur says: It’s never been done.

“That private insurance market doesn’t exist,” she said. “If it does it’s super costly to try to insure against something this specific.”

Both candidates have thrown up persuasive defenses. Sununu’s proposal has a green light from the Insurance Department and Department of Employment Security, he told the Monitor editorial board Friday. And Kelly has pointed to a series of stress tests carried out by the latter proposal earlier this year that suggest it could be solvent at differing participation levels.

But as both candidates tout their plans, each is promising something that hasn’t been tried. For the winner, crafting details of the final proposal is going to be a dance of economics.

And for that, plenty around the country will be tuning in.