Colorado voters will face a ballot proposition in November, #118, which requires workers to commit a contribution from their wages as a payroll tax. The program provides eligible workers with 12 weeks of family leave. It would provide up to 16 weeks under certain circumstances. Many question the predictability of the cost.
Update: This article was edited to reflect the measure as Proposition 118. The measure was “Initiative #283” only during the approval process. Once the required state-wide minimum signatures were gathered and verified, the State approved the initiative and assigned it a new number, #118, to reference it as a Proposition on the ballot.
A qualified mother of a newborn would be eligible for an additional 4 weeks, or up to 16 weeks of leave in the event of “a serious health condition related to pregnancy complications or childbirth complications.”
California was the first state to implement the closely watched paid family leave in 2004. After 16 years of offering 6 weeks of paid family leave, their program is only now, as of July 1, 2020, raising benefits to cover leaves for bonding and family caregiving for up to 8 weeks.
Update: August 31, 2020, California lawmakers approved a law that raises the benefit to 12 weeks, effective January 1, 2021.
Why does the number of weeks matter?
The duration of leave for a program is a significant cost driver. While there are around thirteen or fourteen main variables, including what situations the leave can be used for, all variables need to be balanced to avoid imposing a high tax burden on workers. The number of weeks of wage replacement is a major decision as states craft their policies. It matters to workers because ultimately, the solvency of the fund relies on payroll taxes drawn from their wages.
All workers are subject to the same rate up to an annual cap.
These government-managed funds, called “universal social insurance,” are community rated with no experience rating. So, regardless of your potential or actual use of the benefit, you are subject to the same premium rate. Your payroll tax to support the fund is collected to an annual cap, similar to social security. Tax collection can be made more or less progressive by raising or lowering the annual cap to capture more or less tax revenue from higher-income earners.
The terms of the law make it quite difficult for the program to control costs. Most private insurance providers have multiple options to discover a balance between benefits covered, services offered, and cost. This allows them to be more responsive to the needs of a broader number of those employers and employees their policies serve.
While the state-run, universal social insurance model may be good news for those with heavy needs, it is not for those who have only moderate needs, only occasionally taking this particular leave of absence.
California’s eight weeks is still well shy of the twelve weeks that the states just entering the arena, like Washington, Oregon, Massachusetts, and Connecticut, are promising. Colorado voters might face a choice in November about paid family and medical leave. Are they ready to commit to a program that starts out with similarly generous benefits?
How many weeks is enough?
Washington state was the first state to roll out its program and pay out family leave benefits at a duration level of 12 weeks. Earlier states had all begun at more modest levels. Rhode Island, which started paying out benefits in 2014, is still at a modest level of 4 weeks for their paid family leave. NJ, which first rolled out benefits in 2009, has just raised their duration from 6 to 12 weeks on July 1st as well. NJ taxpayers saw a significant tax increase effective January 1, 2020 in anticipation. All programs have different terms, but typically they designate these as maximums “per application year,” or 52 consecutive weeks.
Paid Family and Medical Leave is a conglomeration of several policies.
Below is a comparison of family leave durations offered by existing states as well as by those states in their implementation stages. This is only for the family leave. It does not include a measure of duration for temporary disability leave if that state structures it separately.
Family leave covers an employee’s wages for a leave due to the health events of other family relationships. Family leave includes bonding leave, wage replacement for parents to bond with their new child, as well as the newer policy concept, caregiving leave, wage replacement for leaves to care for children, spouses, parents, grandparents, siblings, and more, varying by state.
The birth of a child might trigger both family leave and temporary disability. Recovery from childbirth or a complication from pregnancy are considered part of the disability coverage. This leave can then be “stacked” onto the parental bonding leave for a higher annual maximum.
Lack of predictability remains a concern
The use of family leave for parental bonding has grown and has more potential for growth, especially among fathers. And the newer caregiving leave, family care beyond birth and bonding, has tremendous room for growth. This is a concept still in its infancy both in the public as well as private sectors. It is even a relatively new concept among European and other OECD countries. Adoption on this scale, with a wide range of relationships, beyond the care of one’s own children, is limited. The concern is that as the policy gains acceptance and workers become more familiar with its terms, claims could easily escalate at a pace more rapid than expected.
CA: from 6 to 8 weeks, effective July 1, 2020
NJ: from 6 to 12 weeks, effective July 1,2020
NY/10 weeks was effective Jan 1, 2019, 12 weeks will be effective Jan 1, 2021.
* NY is distinguishable as having a policy structure unique from the others. It relies on a regulated market of private insurers. It has implemented three of four planned stages. Three of those change the duration allowed. An intermediate step increased only the wage replacement benefit formula.
The Colorado entry in the graphic above, 2024 and 12 weeks duration, is based on the benefits payout start date and number of weeks as specified in the proposed ballot measure, 118. That proposal allows a maximum of 16 weeks for the circumstance mentioned above, for a birth mom with birth or pregnancy complications.
Workers will begin paying into the plan one year in advance to build the fund before claims will be accepted for verification, processing, and potential payout. As of this publication date, its place on the ballot was not yet secured. Signatures gathered to qualify are under review before final approval.
Is it worth considering alternatives, more targeted policies, or a more modest approach?
Many workers already have access to these benefits from their employers, and even at higher levels. It seems reasonable to avoid wider-spread uncertainty and disruption by starting slowly or at more modest levels.
Because firms in the private sector have been driving toward more flexible and personalized benefits, those with already superior benefits should be relieved of all the risks of a government program.
Targeting modest benefits to those with the most need, including lower-skilled and lower-income workers who lack the benefits is a worthy goal. We have many government policies that do just that. It is worth noting, for example, that one outcome of the 2020 Colorado session was an increase in the Earned Income Tax Credit targeted at lower-income families.
But the PFML model risks overloading their value in the job market, making employers bear excess costs. This could result in their being marginalized. Lower-income workers are also particularly sensitive to shocks to their wages and any drop in disposable income from a higher payroll tax draw. This risk is high with the PFML model.
Most recent proposals have been at these higher levels
Advocates, however, feel strongly that the program must provide benefits that experts have determined are adequate. They disparage the patchwork of what is offered in the private sector and seek uniformity. Significant academic and policy work that supports a government role in family-friendly work policies cites the health benefits of longer leaves, particularly for infant bonding.
There is wide variability among the states’ plans and the policies themselves are complex.
This is an overview of the model Colorado is considering. This newer policy model bundles a wage replacement program and state-enforced job protection. The payroll tax pays for both the cost of claims and the cost of administering the program.
It is only recently that states have considered launching the entire bundle as one law and program as above. Duration is only one of the variables that policymakers set or modify to achieve policy goals. They remain optimistic that they can meet those goals by finding the right mix. To many, this seems unlikely given the context and complexity of rapidly changing needs and economic environments.
The duration and the wage replacement formula are closely hitched.
All factors figure into how much workers must contribute to maintain the state-wide benefit. But both the number of weeks and the level of the wage replacement benefit work together.
A policy that pays out 60% of a worker’s average wage over 12 weeks will draw on the fund more than one that pays out 50% over 12 weeks. Most specify a weekly cap that limits draws from high-income earners and redistributes the payouts down the income scale. Several states have implemented progressive formulas that do more to tip benefits toward lower-income participants.
Why the progressive, more generous wage replacement formula?
Early wage replacement formulas were simpler. But disappointing outcomes like take up skewed toward high-income earners led states to modify variables. Progressive formulas are meant to encourage program use by low-income earners. Those workers may need closer to full wage replacement in order to make the choice to stay home.
What level of confidence should a state have that they can keep the program affordable?
California has a workforce of over 19 million (pre-COVID19). An unanticipated increase or change in the pattern of claims could require a sizable premium adjustment in order to keep the fund solvent. PFML advocates are confident that this is not a concern. But others point to valid reasons why there are high levels of uncertainty around growth in program use.
Washingtonhad a rocky launch when it opened up its program to claims submission and payment on January 1, 2020. Initial claims far exceeded what they had anticipated. There has been little news since COVID19. The barrage of unemployment claims have added to the overload and all but buried the department. It has struggled to keep up with claims processing resulting in frustrating delays and completely overwhelmed phone access. Eventually, the numbers must be reported and reconciled.
Unknowns after lawmakers increased duration from 6 weeks to 12 weeks also put NJ through a stressful payroll tax increase. They found that their initial claims estimates might be inadequate. The size of the tax hike came to many as a surprise.
Colorado’s workforce has been recently closer to 3 million. But efforts to estimate adequate funding may prove difficult due to the public’s much higher rates of awareness. and the populatarity of the program. This could have a significant impact on participation. Many are now following paid family leave’s progress in the media and are eager to take advantage of the program.
Earlier states acknowledge that lack of program awareness, with rates of awareness as low as 40 to 50%, suppressed the use of the state-managed benefit. This makes reliance on earlier states’ experiences to gauge costs a big risk.
Why should Colorado voters care?
Proposition 118 would be among the most generous. It proposes twelve weeks for the duration, an optional 4 weeks to stack for a pregnancy complication, and a generous wage replacement formula. If the ballot proposition fails, Democratic lawmakers intend to again propose a PFML bill – next session, 2021.
If Colorado does pass Prop118, committing the state to a paid family and medical leave program, work begins. Over the next three years at the state level, the new department, a division of the Colorado Department of Labor, would implement an expansive administrative infrastructure to manage the program. Businesses throughout the state will revisit employment contracts and make adjustments to their existing employee benefit structures. It will likely stall innovation by companies in the direction of family and workplace flexibility policies until they understand the full costs of this mandate.
The bottom line: This commitment is irreversible for better or for worse.
It is unlikely that a program on this scale will ever be abandoned, regardless of its cost or success.
Resources will be committed. The numbers in the aggregate are staggering. Responses to the program’s rules will lead to adaptation and changes in decision-making at multiple levels throughout the economy. Finally, and perhaps most important for Colorado voters to consider is that saying yes to this mandate is saying no to future, more adaptable alternatives, many that we can’t yet imagine.
Note: This article is republished from a previous post. Some of the duration maximums vary depending not only on the state but also on the circumstance. That may have been unclear in the earlier post.