The House Ways and Means Committee released the statutory text of its paid leave proposal earlier this week. As expected, it is a complicated mess riddled with design problems that could be easily fixed. In this post, I will outline some of the issues with the proposal with a focus specifically on the case of parental leave for the birth of a child.
The proposal establishes the following wage replacement formula.
|Weekly Earnings||Marginal Wage Replacement Rate|
|$0 to $290||85%|
|$291 to $659||75%|
|$660 to $1,385||55%|
|$1,386 to $1,923||25%|
|$1,924 to $4,808||5%|
In graph form, it looks like this.
The problem with this formula is that it has no minimum benefit amount. This is a change from the prior Democratic proposal, the FAMILY Act, which included a minimum benefit.
The lack of a minimum benefit means that otherwise eligible people with low earnings, e.g. part-time minimum wage workers, will receive so little from the paid leave program that it will not be practical for them to take advantage of it.
This problem can be solved by establishing a minimum benefit equal to at least the federal minimum wage, which is $290 per week.
The proposal establishes a benefit duration of 12 weeks per eligible individual adult.
This means that a new single parent will have 12 weeks off before they must return to work and begin incurring childcare expenses while a new parenting couple will have 24 total weeks off before they begin incurring childcare expenses.
This also means that parenting couples whose jobs are flexible enough that both can realistically take all 12 weeks get the full 24 weeks of newborn coverage while those with less flexibility get less than 24 weeks.
These problems can be solved by providing 24 weeks of paid leave for each newborn, but allowing those weeks to be given to each parent in different amounts. The way this would work is that you would initially assign 12 weeks to each parent. When only one parent is present, the 12 weeks of the deceased or absent parent would be transferred to the present parent. Where two parents are present, they would be permitted to transfer some of their 12 weeks to the other parent.
This is how parental leave is designed in many other countries and it does a better job of ensuring that each birth event results in similar amounts of pre-childcare parental leave coverage.
In order to be eligible for any benefits under the proposal, you need to have earnings in the 3 to 6 months prior to taking leave. A large share of new parents will not be able to satisfy this work history requirement and therefore will not be eligible for benefits under this proposal.
This work history requirement differs from two prior requirements proposed by Democrats. Those two proposals (I, II) would have denied benefits to 30 to 40 percent of new mothers. Absent a longitudinal data set linking work records to birth events, it is hard to say precisely how many new mothers these new work history requirements will exclude, but it is likely in the same ballpark as the prior two proposals.
The parents that will be ineligible under these rules include: parents who have children prior to joining the workforce (e.g. high school and college students), parents facing a spell of long-term unemployment, parents with work-limiting disabilities, victims of pregnancy discrimination who are fired more than 3 to 6 months prior to their birth dates, mothers with high-risk pregnancies requiring that they leave the workforce more than 3 to 6 months prior to their birth dates, and all other parents who are out of the labor force for some reason.
This problem can be solved by declaring that all new parents will be eligible for at least the minimum benefit (discussed above) even if they do not have earnings in the 3 to 6 months prior to taking leave.
Employer and State Leave Plans
For years, Democrats have pitched paid leave as a very simple Social Security program. But in the last few months, Richard Neal has steered the policy in a much different direction. Instead of a unified federal program, the House is now proposing to create a complex hybrid paid leave program that includes employer-provided private paid leave insurance, state paid leave programs, and then a residual federal benefit that is only available to people not covered by an employer or state plan.
Under the new proposal, employers are invited to set up their own paid leave programs, which they can either self-fund or contract with a private insurer to run. In order to administer this, every single employer with a paid leave plan will have to register their plan with the Treasury every single year. As part of this registration, they will send a list of every employee that they expect to be covered by the plan each year to the Treasury.
In the case of an employer with a third-party insurance plan, the Treasury will pay the employer a cash amount equal to 90 percent of the national average cost of paid leave per employee multiplied by their number of employees, which the employer will then fork over as a premium to a private insurance company. (Bizarrely, Richard Neal has highlighted on his website that one of the private insurance companies that will benefit from this has endorsed his bill.)
By including private insurance in this way, the bill ensures that we will waste some of our paid leave money on private insurer overhead and profits. It also invites employers and insurers to profit off of benefit denials and cream-skimming of various sorts. An employer who has a workforce that takes a below-average amount of paid leave could conceivably get an insurance contract that charges less than the grant the Treasury pays them and then pocket the difference.
The employer and state plans will also massively complicate the system for individuals trying to take paid leave. Individuals seeking leave have to figure out firstly whether they are covered by an employer plan, secondly whether they are covered by a state plan, and then, if not, apply to the federal government for benefits and, in that process, prove they aren’t covered by an employer or state.
What happens to someone who was covered by an employer plan at the beginning of the year but was later fired and is now seeking paid leave? According to the bill text, their name will show up in the Treasury database as being covered by their prior employer even though they no longer are.
What happens if your employer or their insurer wrongly denies your benefit claim? The bill provides for an appeals process that initially goes through the employer itself and only then to the Treasury as a second appeal. Does anyone really think that this appeals process will protect against an unscrupulous employer?
What the House is doing with the paid leave proposal is transforming it away from the way Social Security works to the way the US health care system works. Instead of a simple, federalized program, they are creating a grotesque system of federally-subsidized employer-provided private paid leave insurance combined with federally-subsidized state-provided paid leave and then having the federal government directly step in only as a last resort, sort of like the Obamacare exchanges in the health care system. This will be an administrative nightmare for everyone involved and this nightmare will, by itself, keep a lot of people from getting the paid leave they are eligible for.
The fix to this problem is to go back to the simple Social Security benefit design that the Democrats have been nominally pushing for the last couple of decades. Employers or states should be welcomed to provide supplemental paid leave benefits in addition to the federal benefits. But they should not be invited to cannibalize the federal benefits while creating an administrative mess.