Human Resources: Gov. Swift Greatly Underestimates Cost of Massachusetts Paid Family Leave Plan

Washington, D.C. - A plan by Massachusetts Gov. Jane Swift to provide workers with paid family leave may cost millions more than the state has planned for, according to an analysis of demographic and income data by the Employment Policy Foundation (EPF). The Swift administration places the cost of the plan between $27 million and $32 million for the first year and $22 million to $27 million annually after that. EPF estimates the program could cost almost $74 million per year. The Massachusetts plan would provide one-half a worker''s regular weekly wages, plus $25 per child born or adopted - up to a maximum amount of $300 per week for up to 12 weeks. Workers in families with annual income higher than $88,250 would not be eligible for the program. To pay for the plan, the state intends to use money in the Massachusetts Medical Security Trust Fund. The fund''s intended purpose is to provide unemployed workers with subsidized health insurance coverage until they find new jobs. The fund''s current balance is $120 million, but the Swift administration intends to take $90 million out of the fund and use that money for other purposes unrelated to health insurance coverage. "The wisdom of establishing a program of this magnitude using money originally intended to assist unemployed workers is questionable," said EPF President Ed Potter. "At a time when U.S. Senator Ted Kennedy has proposed increasing subsidies to help newly unemployed workers keep their health insurance, the Swift administration proposal puts the health insurance of displaced workers who rely on the Medical Security Trust Fund in jeopardy by funding paid leave for those who have jobs." The major difference between EPF''s cost estimate and that of the Swift administration is in calculating the number of workers who actually would use the program. The Swift administration proposes that these usage rates - or "take-up rates" - will vary by income level. Its estimates are based upon take-up rates of 10 percent for individuals in upper-income families (above $44,125 annual salary) and 70 percent for lower-income families. "The Swift administration has based its cost estimate on a model that uses arbitrary numbers to vary take-up rates by income level," Potter said. "There is not enough data available to estimate the cost with sufficient accuracy based on this method." Instead of using take-up rates based on income, EPF used the amount of time workers would likely take off from work as the basis for its estimate. "Leave duration" is a more significant and accurate cost component than take-up rates. EPF calculated its cost estimate of almost $74 million - which is based on actual Family and Medial Leave Act (FMLA) leave duration and take up rates for workers who have newborn or adopted children - on the following factors:

Massachusetts will have a total of 53,653 births and 302 adoptions to eligible workers during the next 12 months, based on state data.

The current take-up rate for women is about 66 percent and for men is about 76 percent, according to the labor Department''s 2000 FMLA survey.

The actual leave duration for women is eight weeks and for men is two weeks.

The average weekly benefit is $200 per week.

Out of 77,125 workers estimated to take paid leave, 35,907 (46.5 percent) will be women.

Annual benefits to paid leave taker are $1,600 for women and $400 for men.

Projected annual cost per covered birth or adoption is $1,370.74.

Under these projections, the annual cost of the program is almost $74 million, with payroll taxes, interest and participant contributions failing to cover an estimated almost $20 million annual shortfall. Based upon the Massachusetts Medical Security Trust Fund''s current balance, it could go bankrupt within six years. However, if the state removes $90 million from the $120 million in the fund as planned for other purposes, it will run out of money in just one-and-a-half-years. In either case, significant increases in payroll taxes will need to be put into place to keep the fund solvent. If you have any questions or comments about this EPF communication, please send an e-mail to dlara[at]epf.org.