fb-pixel
CHESTO MEANS BUSINESS

Will the state’s new paid leave program suffer as big employers opt out?

Massachusetts is one of the first states to mandate paid leave after <a href="https://www.bostonglobe.com/metro/2018/06/19/lawmakers-advocates-close-compromise-minimum-wage-paid-leave-and-sales-tax/6BN0ONTWicbn8sAk7umezO/story.html">negotiations</a> between business and labor leaders resulted in new wage and labor laws in 2018.
Massachusetts is one of the first states to mandate paid leave after <a href="https://www.bostonglobe.com/metro/2018/06/19/lawmakers-advocates-close-compromise-minimum-wage-paid-leave-and-sales-tax/6BN0ONTWicbn8sAk7umezO/story.html">negotiations</a> between business and labor leaders resulted in new wage and labor laws in 2018.David L. Ryan/Globe Staff/File 2015/Globe Staff

When business groups hammered out a deal for the state’s new paid family and medical leave program, they pushed for a measure that would allow companies to find alternative coverage from the private sector.

Smart move. Exemptions allowed by the new law have turned out to be popular, with nearly 3,000 employers applying for waivers by the Dec. 20 deadline to opt out, and 2,700-plus already receiving state approvals.

But a division is emerging between big companies and small ones. Larger ones are often choosing options offered by insurers. The smaller firms, particularly those with fewer than 25 workers, are sticking with the paid leave plan administered by the state.

Advertisement



Companies enrolled in the state plan have to remit payroll taxes for 15 months before their employees receive any benefits. The idea is to build up a reserve that ensures there’s enough money once workers start taking paid leave in January 2021.

Private insurers, meanwhile, offer an enticing option: No need to pay until the benefits take effect in one year.

This split raises an important question: Will the money the state collects be enough to sustain its paid leave program, or will it need to eventually increase payroll taxes among the companies in the plan to compensate?

Massachusetts is one of the first states to mandate paid leave after complex negotiations between business leaders and labor and community activists resulted in new wage and labor laws in 2018.

But it hasn’t always been smooth sailing. The Baker administration initially tried to start collecting payroll taxes in July, but the business community balked, saying there wasn’t enough time for insurers to set up viable alternatives. A three-month delay provided enough time for a dozen or so insurance companies to offer plans that are at least as good.

Advertisement



Companies with 25 or more workers pay 0.75 percent of their employees’ wages during this interim time to prop up the state program; they can require workers to pick up a significant portion of that tab — and many are doing so.

(Smaller firms essentially only have to pay half that amount.)

In return, full- and part-time workers can get paid, up to a certain amount, for 12 weeks of family leave a year or 20 weeks of medical leave.

Michael Ward, managing principal at the OneDigital Health and Benefits consultancy, said the program still seems rushed. Insurers didn’t have much time to develop coverage, and companies didn’t have much time to weigh their options. Nevertheless, more than two-thirds of Ward’s clients are opting out of the state plan.

One big incentive, according to Jeffrey Wasco of Guardian Life Insurance: skipping the first 15 months of payments. Another incentive: the convenience of wrapping paid leave in with other insurance products. Wasco said it’s hard to tell how many Guardian clients are covering the entire tab, versus sharing costs with employees. (One client, apparel company Life is Good, says it’s footing the entire bill, as a benefit to its 200 workers.)

Smaller companies, particularly those with more part-time or low-wage jobs, are much less attractive as customers for private insurers. High earners are seen as less likely to cash in on their leave benefits, in part because the payouts are capped at $850 a week. Plus, insurers can’t really offer coverage at a better price than the half-off the state provides companies with fewer than 25 workers.

Advertisement



The Retailers Association of Massachusetts and the Massachusetts Restaurant Association are recommending that their members — primarily small businesses — stick with the state plan. Bob Luz, head of the restaurant group, said the first-year savings offered by many private insurers could be overshadowed by premium hikes down the road. Plus, Luz doubts his members want to deal with the headaches of deciding whether workers can take time off. Better simply to leave it up to the state.

So will the current level of contributions to the state fund be enough to sustain coverage, given the exodus to the private sector? It’s far too early to know for sure. Andrew Farnitano, a spokesman for the Raise Up Massachusetts activist coalition, said he’s not worried. The exemptions were all part of the grand plan. Plus, he notes that the Commonwealth of Massachusetts — a huge employer – is in the state program.

But Bill Randell, president of Advantage Benefits Group in Worcester, envisions a scenario in which the state program becomes akin to a high-risk pool. The state gets stuck with all the high-risk employers — the ones with low pay and high turnover — and needs to keep raising rates as a result. He says state officials never anticipated this many companies would get exemptions, especially so soon.

For now, at least, labor officials don’t seem to be sweating. A spokesman says the new family and medical leave office doesn’t expect the exemptions to undermine the program.

Advertisement



After all, there are roughly 175,000 establishments in Massachusetts affected by the new requirement. However, it doesn’t help if the private sector cherry picks the best customers.


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.