Family Leave Insurance: Integrating More Equity into Employer Paid Leaves

There are several new approaches to expanding employee access to paid family and medical leave, which leads more multistate employers to question how they can ensure equity across employee populations.

States are taking several approaches to expand employee access to paid family and/or medical leave coverage. Since 2004, 13 states and the District of Columbia have either added paid family leave (PFL) coverage to existing statutory disability programs or created a new, statutory paid family and medical leave (PFML) program. And during the last two years, two new approaches have emerged: In New Hampshire and Vermont, employers can buy into a program facilitated by the state through a preselected insurance carrier to provide employees with PFL coverage. A group of Southern states have expanded access to PFL by changing the insurance code to allow insurers to offer family leave insurance (FLI) coverage. Unlike states with a statutory PFML program, states with FLI have no government paid leave programs or mandates. They allow insurers to offer FLI to employers looking to provide it for employees, which is similar to how employers offer short-term disability insurance coverage.

As options increase, how do multistate employers leverage them to achieve more equitable paid leave benefits for their employees?

Multistate employers can find themselves contemplating the fairness of some employees having access to paid leave simply because they work in a state that requires it while other employees do not. For example, without the option of FLI or a company-specific, self-administered paid leave plan, an employer in Florida with remote employees in Massachusetts, Connecticut, New York, New Jersey, South Carolina, and Georgia would have some employees with access to paid leave benefits and others who would not.

The FLI option — for employers in states that have expanded the insurance code — can balance this out. For example, if this employer purchased an FLI policy in Florida, the company could offer fully insured paid leave benefits to employees in Florida, South Carolina, and Georgia in addition to the PFML benefits available in other states.

Competitive Advantage

The advent of government-mandated programs has leveled the playing field for small businesses in the competition for talent because the cost to pay for leave benefits is shared, according to the National Partnership for Women and Families.¹ Another study² compared work history outcomes data from before and after certain states passed PFL and compared them to people in states without similar mandates. The study found that access to PFL “more than halved” the rate at which women left their jobs to care for their spouses with serious health issues. Applying similar logic, small-size to midsize businesses with employees in states that do not have a government program and offer PFL may have a leg up for talent acquisition and retention against other competitive employers that do not offer these benefits.

Understanding Leave Types

How Will FLI Work?

FLI provides workers with paid time away to:

• Bond with a new child when a child is born, adopted, or placed through foster care;
• Provide care for a family member with a serious health condition (“family” within the context of FLI is generally defined as a parent, child, spouse, or domestic partner); and
• Provide care during a qualified military exigency when a family member is on active duty or has been notified of an impending call or order to active duty in the armed forces.

While some large businesses self-fund this coverage for employees, only 27% of working Americans (about one in four) have this benefit, according to the U.S. Bureau of Labor Statistics.³ Employers pay a monthly premium, similar to other insured benefits like disability insurance, and insurance carriers hold the risk. Employers can determine the benefit percentage and duration of leave and will not need to administer or self-fund the plan internally.

Benefit Duration

Much like disability insurance, FLI insurance policies will not provide total income replacement unless that is requested by an employer. Generally, the policy will offer a percentage of income replacement, and an employer may choose to align this percentage with its short-term disability policy, when applicable. Leave duration will also be selected by employers, generally ranging from six to 12 weeks.

Advantages of an FLI Plan

Providing a fully insured FLI plan for employees in states that do not have a state mandate allows employers to define wages and select wage replacement provisions that align with existing disability programs and have one common claims administration experience for employees. FLI can complement other existing employer absence programs, including mandatory PFML programs, to provide more equitable paid leave benefits across employee populations.

The patchwork of PFML plans across the U.S. presents challenges for employers, especially midsized organizations that want to achieve more equitable programs but do not have the resources to manage a self-funded program. State leave plans differ, so it requires a considerable amount of time and attention to communicate and coordinate benefits. At the same time, these benefits are welcomed by employees and support families and society. They can also benefit employers, as noted by independent studies.

Ensuring that employers have all the relevant information helps weigh the pros and cons to the different options available across the U.S. — from mandated PFML plans to voluntary options and newer FLI options in some states — that help employers level the playing field and provide paid leave benefits to more employees on their own terms.