Privatizing Family Leave Policy: Assessing the New Opt-in Insurance Model
35 Pages Posted: 26 May 2023 Last revised: 14 Jul 2023
Date Written: May 24, 2023
Federal law fails to guarantee new parents or family caregivers paid time off from work. A growing number of blue-leaning states have addressed this gap by enacting comprehensive paid family and medical leave laws, typically funded by a small payroll tax. A new—and quite different—approach is expanding rapidly in red-leaning states: authorization of commercial “Family Leave Insurance” to be marketed to employers. In other words, this is an opt-in privatized approach to family leave policy.
This Article, written for a symposium held by the Seton Hall Law Review, offers the first analysis in the legal literature of opt-in Family Leave Insurance laws. These laws anticipate that insurance companies will likely add “family leave” to group short-term disability policies (an existing insurance product that provides partial salary reimbursement to employees who take time off work for medical needs). However, only about 40% of American workers, and just 22% of low-wage workers, receive short-term disability benefits from their employers—and most policies replace only 50-60% of regular wages. Providing paid leave at the low reimbursement rate typical of short-term disability policies can actually exacerbate inequality by making it easier for relatively affluent workers to take extended time off but still failing to provide sufficient support for low-wage workers to do so. By contrast, states that have enacted comprehensive paid leave laws, funded by a payroll tax, typically cover virtually all workers, and most replace 80-95% of regular wages, up to a cap set around the median wage.
This Article analyzes the new privatized Family Leave Insurance model, then suggests provisions that would help opt-in policies actually meet the needs of new parents and family caregivers. These include specifying a reasonably ample period of benefits and level of wage replacement, and ensuring that definitions of “family” reflect the diversity of contemporary families. The Article also explores potential adverse selection challenges—both within workplaces and across workplaces—that may arise under an opt-in approach. Because the risk pool will almost certainly be less varied than under a public program, private Family Leave Insurance may well provide less generous benefits at a higher per-person cost than fully-public policies. Authorization of opt-in insurance is better than nothing, but, as this Article demonstrates, it is likely that both workers and businesses are better served by comprehensive paid leave laws.
Keywords: FMLA, paid family leave, family leave insurance, paid leave
JEL Classification: K10, K31, K30, J13, J70, J80
Suggested Citation: Suggested Citation