Privatizing Family Leave Policy: Assessing the New Opt-in Insurance Model

Deborah Widiss, Oct. 5, 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, packaging family leave with group short-term disability policies. 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. By contrast, states that have enacted 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). The talk suggests provisions that would help opt-in policies actually meet the needs of new parents and family caregivers. It also explores potential adverse selection challenges that may arise under an opt-in approach. Authorization of opt-in insurance is better than nothing, but it is likely that both workers and businesses are better served by comprehensive paid leave laws.