Tom Williams/CQ Roll Call via AP Images
Chairman Richard Neal (D-MA) conducts the Ways and Means Committee markup of the Build Back Better Act, September 14, 2021, on Capitol Hill.
The House proposal for paid family and medical leave, a signature piece of Democrats’ new social spending in what is called the Build Back Better Act, smuggles in a major giveaway to private insurers. It’s happening with the consent of key center-left advocates calling for the legislation. Even as the Senate develops its complementary plan, these groups are backing away from their long-standing push for a public paid leave policy.
The framework put forth earlier this month by House Ways and Means Committee chair Richard Neal (D-MA) breaks with a proposal that has long been championed by Sen. Kirsten Gillibrand (D-NY). Both Neal’s paid leave plan and Gillibrand’s FAMILY Act would give up to three months of paid leave to care for a new child, or nurse a sick family member.
But while Gillibrand’s older plan would send paid leave benefits directly to workers through the Social Security Administration, Neal’s program, run through the Treasury Department, leaves in place employer-provided private insurance.
Many employers who currently provide paid leave do so by taking out insurance to manage the benefit. They often outsource policy management to life insurers, who already dominate the disability insurance market. The Treasury, under Neal’s plan, would reimburse employers for paid leave benefits, ponying up 90 percent of the national average paid leave rate in refunds. For employers already providing paid leave, that coverage would now be subsidized. Employers would likely pass along the reimbursement to the private insurers, using money they had spent on paid leave for other priorities.
Meanwhile, the vast majority of employers, who currently do not provide paid leave, would be flush with cash to shop for private plans, creating a roaring new life insurance market with tens of millions of workers eligible to become enrollees.
INSURERS ARE IN HIGH SPIRITS about the House plan.
The American Council of Life Insurers (ACLI), a trade group that lobbied Neal to include private business, praised the final product in a statement to the Prospect, thanking Neal for “the opportunity to partner and for continued dialogue.”
Neal counts insurers like Blue Cross Blue Shield, Massachusetts Mutual, and Pacific Life among his top donors. He is also heavily backed by hospice and home health companies such as Amedisys and LHC Group, which has this year aggressively acquired hospice providers spun off by private equity.
Sun Life, a life insurance company that also backs Neal, donated to at least nine other members of the Ways and Means Committee during the 2019–2020 cycle. The company has been an enthusiastic supporter of Neal’s plan, appearing in a promotional video alongside Melinda French Gates, the billionaire ex-wife of the Microsoft founder, who met with the White House to argue for paid leave on behalf of her social-impact investment firm, Pivotal Ventures. Sun Life was also featured among a set of stakeholder endorsements Neal’s committee released about the paid leave plan.
In an interview with the Prospect, Sun Life U.S. President Dan Fishbein argued that private insurance adds value to paid leave by helping people navigate their policies. Plus, he cautioned, beneficiaries might not know what to do if they are simply given cash.
“The industry today is a well-developed industry, with thousands of people whose entire purpose is helping people get back to their optimal level of functioning and productivity. And the Social Security Administration isn’t going to do any of that. The way the FAMILY Act is written is, they would simply be issuing checks. You know, making benefits payments.”
Matt Bruenig, a policy analyst who has criticized Neal’s plan as convoluted and leaving out the most vulnerable, said that since paid leave is simply a wage replacement during a period of need, it’s particularly difficult for private insurers to make a convincing argument for why their higher costs correspond to real services.
“Unlike health insurance, where at least arguably, the health insurer could say, ‘Hey, we’ve got a really innovative way of doing health insurance, where we make sure people get their preventative care and save costs’—where they say they have a differentiated product and add some value—with paid leave, it’s just money. It’s just cash. The only way you can make extra money is cream-skimming, or not paying legitimate claims.”
Fishbein also emphasized Sun Life’s collaboration with advocates, including Gates and the National Partnership for Women & Families.
Insurers are in high spirits about the House plan.
FURTHER COMPLICATING NEAL’S PLAN, state paid leave programs, which exist in nine states and the District of Columbia, would be grandfathered in. All but Rhode Island and D.C. include options for paid leave benefits through private insurers.
Private insurers would be asked to match new federal requirements. But the insurance industry would take a cut of the profits, driving up overall costs, which are coming out of an artificially scarce and shrinking pool of taxes funding the reconciliation bill.
The Social Security–administered plan is expected to cost around $500 billion, according to the Congressional Budget Office, while Neal’s plan including private insurers would be closer to $600 billion, Politico reported.
New federal benefits in the Neal plan would be available to people not covered by either an employer or a state plan. It’s hard to predict what share of spending would go to that residual federal benefit, and what share would flow to private insurers, but since employers will be free to launch new programs, it’s possible private plans will gobble up a large share of the market.
Workers needing to access the federal benefit would have to prove that they’re not covered by a state or employer plan, complicating the application process.
Either way, running state, federal, and private paid leave plans will be a snarl, especially during times of high labor market churn. It’s not clear, for example, whether under Neal’s plan workers would qualify for something like COBRA—benefits for the recently unemployed. And anyway, Neal’s proposal isn’t expected to go into effect until 2023, after the midterm elections.
If instead of delivering direct benefits, social policy in reconciliation is gummed up with means testing, private-sector carve-outs, and confusing requirements, Democrats won’t collect political capital for policies passed, and the programs may simply not work well.
PROGRESSIVE ACTIVISTS, meanwhile, are declining to push back on insurers’ efforts to rake in new federal spending. Some advocates even argue in favor of private-sector involvement.
“We don’t want to say, if someone really likes their plan, that we’re going to take it away,” Dawn Huckelbridge, director of the advocacy group Paid Leave for All, said in an interview with the Prospect.
“It’s not like this is going to become just one big private program,” Huckelbridge explained. “They’re going to have to meet higher requirements to qualify for what is just a partial reimbursement.” (The reimbursement is around 90 percent of the average cost.)
Advocates are refraining from criticism while the Senate develops its plan, Huckelbridge said, and not “choosing fights” right now. Her comments echoed those of Vicki Shabo, a fellow at the think tank New America who previously led the campaign for paid leave at the National Partnership for Women & Families.
“We’re in the sausage-making stage of this legislation, so there may have been considerations at play incoming from other stakeholders in the private sector,” Shabo told the Prospect. She said the current version is an improvement on a draft plan Neal put out in April.
“If we were creating a system from scratch, we might try to insure everybody through a public program … However, I trust the judgment of the Ways and Means Committee and of politicians who need to square the fact that there are lots of different interests at play,” Shabo concluded.
Advocates insist that the House’s paid leave policy is universal, reaching the most vulnerable workers.
Advocates like Shabo also insist that the House’s paid leave policy is universal, reaching the most vulnerable workers. That’s despite the fact that Neal’s plan has no minimum benefit amount, meaning part-time workers with low earnings will see trivially small wage replacement.
“There’s no floor on the payment. So yes, it helps them out, at least nominally, in that they get 80 percent of the replacement rate, or whatever the number is. But 80 percent of $100 a week is not a lot of money, especially if you just had a kid,” said Daniel Sacks, an economist at Indiana University who studies insurance benefits.
In response to a request for comment, Gillibrand spokesperson Evan Lukaske told the Prospect that the senator will keep pushing for a universal plan administered through Social Security.
Sen. Elizabeth Warren (D-MA), who has also been a leading sponsor of the FAMILY Act, did not respond to multiple requests for comment. Neal also did not respond to the Prospect’s request for interview or comment.
Given the need for unanimous support in the Senate, Gillibrand’s or another senator’s opposition could force changes to the program design. But if she does fight the last-minute switch to a paid leave plan with payouts to private insurers, it will be despite advocates’ public-facing apathy.
One possible explanation for progressives activists’ shrug of the shoulders: Key groups responsible for getting paid leave across the finish line are funded by mainline Democratic Party donors, who will want to see wins in a bill that is increasingly viewed as a zero-sum game.
That’s setting off debates among nonprofit groups about how to claim pared-back demands as partial wins. The more aggressively they hold the line now, the more painful losses will look later.
Paid Leave for All, Hucklebridge’s group, describes itself as a “national campaign of organizations fighting to win paid family and medical leave for all working people.”
The group is financed by the Hopewell Fund, a liberal nonprofit which is in turn managed by Arabella Advisors, a for-profit consultancy. According to InfluenceWatch, Hopewell’s top donor in 2018 was Fidelity Investments Charitable Gift Fund, a colossal donor-advised fund which acts as the dubious philanthropic arm of Boston-based asset manager Fidelity Investments. Fidelity also ranked among Neal’s top five donors in 2016, 2018, and 2020.
The “national campaign” model used by Paid Leave for All—an umbrella coalition that advocates on behalf of a network of member organizations—has become popular with political funders. Arabella and other D.C. consulting firms argue that initiatives like those sponsored by Hopewell can be a “nimble, quick-to-market platform” for achieving policy goals.
Pop-up groups can launch glossy advertising campaigns and dispatch communications staffers, while looking superficially like the slower-moving grassroots groups they list as members. Professional advocates’ reluctance to enter late-stage battles over policy design may be partly a result of this funding structure, which is highly responsive to funders’ priorities.
On the other hand, activists’ shyness could also be a result of the precarious state of talks, given the growing possibility that reconciliation negotiations grind to a halt altogether. In a “Dear Colleague” letter sent to House Democrats on Monday night, Speaker Nancy Pelosi ticked off a number of policy initiatives that the Build Back Better Act “must” include. Paid leave was not on the list.
