Sununu gets his paid leave plan, but some see pitfalls

New Hampshire Bulletin
Published: 7/7/2021 5:44:12 PM

It was passed into law at nearly the last possible moment. But after three years of legislative starts and stops, Gov. Chris Sununu’s paid family and medical leave plan is now a reality.

The plan – in which the state subsidizes a statewide paid family and medical leave insurance policy and allows businesses to opt-in – was added to the New Hampshire budget by Senate Republicans in May. In June, it made it into the final version of the budget passed by the Legislature, over the objections of House Republicans, many of whom opposed it over spending concerns.

Now, the program will kick off in January 2023, with participants eligible for up to six weeks of paid leave as early as August 2023.

“This is obviously an innovative approach to paid family leave,” said D.J. Bettencourt, the deputy commissioner of the Insurance Department and former policy director for Sununu.

“It’s different than any other state has tried to do it. But needless to say, we have a high degree of confidence that it will work, predominantly because we went out to the industry, to the individuals who run and administer these types of products” to seek advice, he said.

But the details of how the plan is funded, how much it will cost, and who’s going to run it are still being worked out, an effort that will continue over the next year and a half. Critics argue the program’s success is hardly assured.

“It’s not a policy that will work for New Hampshire families,” said Amanda Sears, director of the Campaign for a Family Friendly Economy, a paid leave advocacy group in the state. “... It fundamentally does not meet the basic reason to do public policy around paid leave, which is to ensure that the people who need it have it when they need it.”

Here’s what’s known about the plan so far.

An opt-in plan

On paper, the benefits provided by the governor’s plan are similar to those pushed by lawmakers in 2018 and 2019 – particularly Democrats.

Under Sununu’s plan, those who participate may receive up to six weeks of payment to help subsidize a period away from the workplace.

The benefit covers up to 60 percent of an employee’s wages if they take a leave from work because of the birth of a child within the past 12 months; because of the adoption of a child or foster child within the past 12 months; because of a family member’s serious health condition; or to care for a service member in the armed forces.

But if the benefit is the same, the mechanism to deliver it is much different. Sununu’s plan does not strive for “universal” coverage. And it does not include a mandate that employers participate.

Instead, the governor’s plan seeks to create a base for the plan by giving it to state employees automatically. Unlike private-sector employers and employees, the roughly 10,000 state employees will not need to pay premiums; the state is picking up the tab to ensure everyone on the state payroll gets the benefit.

Officials say that means the state will have a defense against “adverse selection” – the actuarial phenomenon where only the people who need to use the insurance end up buying it, leading to higher costs for insurers and higher premiums in turn.

With the state employees included, the state has a base pool of people in the insurance program from a variety of backgrounds, even people who may not meet the profile of someone using family leave.

That, backers of Sununu’s plan argue, will keep the program affordable.

A $5 maximum premium

How much will you have to pay for paid family leave under the plan? That depends on where you work.

If you’re a state employee, the state will pay your premium.

If you’re an employee at a large company – 50 people or more – your employer has the option to join the program and pay the premiums entirely, or share the cost with employees.

But if your employer decides not to offer the family leave benefit, or if your place of work has fewer than 50 employees and can’t participate, you can participate individually. According to the statute, that individual premium can’t be more than $5 per week.

To keep those premiums below $5, the program includes a stabilization fund. Funded by taxes imposed against the insurers on premiums, as well as donations, the stabilization fund allows the state to pour more money into the policy if it needs to balance the revenues.

Deciding the cost for the rest of the plans is trickier. The weekly premiums paid by the state and private companies can’t be known until an insurer sets them.

And because the state has capped individual premiums to $5 each, insurers could, in theory, balance out any spike in costs by raising the premiums elsewhere.

Bettencourt says that’s unlikely to happen. The $5 figure has been designed as an upper limit – a worst-case scenario that hopefully would not need to be approached.

“That number was very, very deliberate,” Bettencourt said.

Should premiums start to spiral, Bettencourt added, the contract would be designed so that the insurance company would eat the cost.

“We are very highly confident that this is going to work,” he said. “But if in the event it does not work, the insurance company’s going to bear that risk. And they will have to account for those problems. The state and the taxpayer will not be on the hook for that.”

A tax incentive for businesses

In order to bring private employers into the insurance pool, the Sununu paid family leave program has turned to a favored approach: tax credits.

Businesses that choose to sponsor their employees for the paid leave program and pay for their premiums can deduct 50% of the amount they paid in premiums from their business enterprise taxes, the law states.

The Sununu administration says the incentives will help to maximize the buy-in to the program and keep the program financially healthy, without a mandatory component central to past plans in the state.

As for which insurance company decides to take on the sole task of administering the entire state program, the search has not yet begun. The Insurance Department must issue a request for proposals before March 31, 2022, with the program required to be up and running by Jan. 1, 2023.

In one sense, whichever company decides to take up the contract will be wading into uncharted territory: No insurer offers a comparable statewide plan in New Hampshire, and no other state that provides paid family leave has a voluntary, state-backed plan like Sununu’s plan.

But Bettencourt and other administration officials say they have consulted with insurers in private. The program is designed to attract them, Bettencourt said. And he said that it could inspire other insurers to offer their own statewide plans – independent of state support – years down the line.

“I think it’d be great if that happened,” he said. “If by putting this proposal forward it spawns a new industry in which there’s a lot of competition and a lot of players out there competing, I think that’s a great thing.”

Concerns over unknowns

For Sununu and Republicans, the dual approach – tax incentives and the state investment into the state employee pool and the stabilization fund – provides a more palatable version of paid family leave than a statewide mandatory system.

“It is in the public interest for the state to strategically use its purchasing power and tax expenditure authority to establish a marketplace in the state for advantageously priced FMLI wage replacement benefits,” the statute states in its preamble, referring to family and medical leave insurance.

But for advocates like Sears, the plan passed into law falls short of what an effective program should look like.

“It fiddles around the edges with providing a monopoly to a single private insurer,” she said. “It fiddles around the edges with tax credits that will create unknown holes in our budget.”

To start, Sears says, the program contains an unknown funding structure. Though the statute lays out the process of paying state employees, the budget does not contain a direct appropriation line for the program. Instead, the program will have to use an existing agency or general funds for its first six months of operations – until July 1, 2023.

On that date, a new two-year state budget, negotiated by a new Legislature and potentially a different governor, will have to decide how and whether to fund the program moving forward.

Depending on how state revenues shape up in two years, the next Legislature could have less money to spend than the previous one, which could tempt lawmakers to take an ax to the program, Sears said.

Alternatively, the costs of the premiums could exceed expectations, forcing the state to pour more money into the state employee policies in order to keep the individual pool policies capped at $5 a week.

There are more financial unknowns, Sears said. How much money is needed for the stabilization fund is difficult to firmly establish without a sense of how many businesses and employees will participate.

The state has not carried out any actuarial analyses for the latest version of the plan.

Meanwhile, the number of businesses that take up the tax credit is also uncertain, which could have revenue impacts for the state, Sears said.

Exactly who is going to be eligible could also become complicated. Some New Hampshire employees may inevitably work for multiple employers who make different decisions over whether to join, meaning the 60% wage replacement for their leave may be tied only to a part-time salary.

And who might get approved or denied for certain claims is also unclear from the statute; the Insurance Department has the authority to draft rules to accompany the statute, and establish any conditions

“There’s no process outlined for appeals of denied claims,” Sears said. “So if an individual is participating through the individual pool at the state and they’re paying the state for this benefit, and they get denied, who do they go to?”

Sears has also opposed the static nature of the $5 cap on weekly premiums. The mandatory plan vetoed by Sununu would have charged employers or employees 0.5% – a more proportionate approach that would not penalize low-earning workers, Sears said.

A $130,000-a-year worker pays up to $5 a week – the same amount a $12-an-hour worker pays, Sears said. “But those two people ... they get wildly different benefits, because they get 60% of what their wages are,” she said.

Scrambled politics

Then, there’s the political timing. The program doesn’t become fully operational until mid-2023. Should Sununu decide to run for U.S. Senate, Sears said, it may be a new governor who oversees the first months of the program.

Sears argued that the effect of that timing is that Sununu does not need to face full accountability.

“By the time that he settles into what he hopes is his six-year Senate term, the people of New Hampshire who need paid time off to deal with a medical emergency, they’re going to be looking around, realizing that despite the headlines that the governor had out there, they still don’t have paid leave when they need it,” Sears said.




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