Colorado’s Democratic Governor Demanding Private Insurers Be Given the State’s Family Leave Program

A last-minute dispute over the structure of a paid family leave program is threatening to derail a signature piece of progressive legislation in Colorado, even as the novel coronavirus pandemic pushes national politics toward the recognition of the importance of a strong public health system and secure social safety net.

Democrats control both chambers of the Colorado legislature, and a new Democratic governor took office last year. After trying for six years to pass paid family leave, lawmakers and advocates have been pushing to make this the year it happens. Gov. Jared Polis, however, has said he won’t support the legislation if it does not revamp how the system operates. The legislature had envisioned a public social insurance system in the vein of those used in all eight other states that already have paid leave, as well as the vast majority of other countries. Polis, though, is insisting that a paid leave system rely on private insurance companies.

There is a political logic, rather than a policy argument, behind going with a private rather than a public system. Polis is up for reelection in 2022, by which time private insurers have said they can have the system up and running and paying out benefits. The public system would take longer to set up and would be accepting payments by 2022, but not distributing benefits, potentially making it and the governor politically vulnerable.

Polis’s insistence on this model could doom the entire effort, though Colorado’s politics have become wildly unpredictable in the midst of the pandemic, with a push to temporarily suspend the legislature that could upend everything. Two of the main co-sponsors of this year’s legislation walked away over the private model. “We were on a good path, we were pushing this forward, we were doing the work we needed to do,” Ashley Panelli, a paid leave organizer with 9to5 Colorado, told me. “And then this private conversation has derailed all of our efforts.”

Each iteration of paid leave introduced in the past six years in the state legislature has been designed as public social insurance. “We have a Democratic trifecta” in the legislature and governor’s mansion, Panelli pointed out. “I see no reason that the legislature shouldn’t be able to get this done.”

Last year, it was expected to pass easily until an intense flurry of lobbying hit. “Corporate America really pulled [out] all the stops to kill this thing,” noted Wendy Howell, deputy director of the Colorado Working Families Party. The bill became the most lobbied piece of legislation in the session, most of it opposition from businesses and chambers of commerce.

In response, the bill was pared back to create a task force that would study the topic and issue recommendations. But just as that process was getting underway, Polis sent the task force a letter asking the members to consider a third option not yet on the table: a mandate that employers provide leave either on their own or by buying a private insurance plan. He offered this suggestion, he wrote, “Because of my commitment to making paid leave a reality in Colorado as quickly as possible.” He argued any state program “should provide employees with paid leave benefits as soon as possible; my hope is that this program will be in effect by January 2021.” (His office did not respond to repeated requests for an interview or respond to specific questions about his position.)

Polis was an original co-sponsor of the FAMILY Act when in Congress, a bill that would create a national social insurance program to guarantee all Americans access to paid family leave. In an online discussion in 2018, he pointed to the other states that have enacted social insurance family leave programs, noting “their economies have thrived.”

The private model appears to be the “brainchild” of Polis, as 9to5 Colorado organizer Panelli put it, since his letter was the first mention of it. But private industry was quick to jump on the bandwagon. The same day Polis sent his letter, Pinnacol Assurance, a private workers’ compensation provider headquartered in Denver, sent its own letter expressing interest in offering a paid leave product and offering recommendations for the creation of a private market, which, it claimed, “would be the best way to provide the benefit.” Then just before the task force wrapped up earlier this year, four other private insurers wrote to it expressing their interest; the American Council of Life Insurers even sent model legislation.

The speed with which the private insurers promise to move appears to be the political calculus for other lawmakers who are now supporting it too. The private option is favored “because people don’t want to have to run for reelection when people are paying into a program and not getting benefits yet,” said Debra Brown, executive director of Good Business Colorado, a group representing small businesses that has lobbied in favor of paid leave. “It’s about political aspirations, plain and clear.”

But there’s no guarantee that private insurers can get it up and running in such a time frame. Any new legislation will still have to make it through the state’s Office of Legislative Legal Service’s review of rules and regulations. “I think it’s a promise they can’t deliver on,” Brown said.

“I definitely would have preferred a social insurance model and worked very hard and could not pass it last year through our Senate,” state Sen. Faith Winter, who has introduced social insurance legislation every year for six years and is now sponsoring the private model, told me. She can only afford to lose one Democratic vote in the Colorado Senate and still ensure passage; meanwhile, Polis has made it clear he will only sign a private model. “The political path forward on social insurance wasn’t possible.”

“I feel like I am taking crazy pills because all of this … is so completely unnecessary,” Brown said. “It’s all about politics. … It’s not about policy.”

Despite the letters from Polis and Pinnacol, the state paid leave task force in the end rejected the private option in favor of a public structure. The task force included a diverse set of voices — representatives from the state chambers of commerce, the National Federation of Independent Business, and the conservative Independent Women’s Forum, plus someone from the insurance industry and a local resort owner — yet all but two members voted in favor of social insurance. The two dissenting voices objected not in support of a private system, but different kinds of public models. “None of them supported this private insurance model,” said Kathy White, deputy director of the Colorado Fiscal Institute, who was one of the members of the task force.

“It’s kind of a bummer [and] discouraging that that is wholesale being rejected,” she added.

There are serious reasons to be suspicious of how a private system, which has never been tried in the U.S., would operate. “It will always cost more to go through the private market, because they have to build in a profit margin,” Brown pointed out. Insurers have estimated a 25 percent margin for administration, she said. “It will always cost more than if the state does it.” But businesses will be mandated to offer something to employees, which could leave small companies in a bind: either find a way to offer paid family leave on their own and cover the costs themselves, or buy a product on the private market that may or may not be affordable.

It could also be harmful for employees. As with any private product, insurers will be motivated to deny people’s claims for leave. “We see that with health insurers all the time where they are incentivized by profit to deny claims,” Howell, of the Colorado Working Families Party, pointed out. “Unless you have really, really tight, strict guardrails on claims denials with meaningful penalties, that is a perverse incentive.” That doesn’t exist in social insurance; people who are eligible are entitled to a benefit.

Meanwhile, employers who are faced with the prospect of either offering benefits or buying pricey private products may hesitate to hire people who appear more likely to need leave — such as women of childbearing age — or to promote and reward the ones who take it. “Who’s looking out for them?” White wondered. “Who’s the watchdog?” A universal system that requires both employees and employers to pay in negates the issue, as does putting the government in charge.

And despite the rationale that a private system could get up and running faster, that doesn’t mean all state residents would benefit right away. The bill includes a long phase-in period that won’t cover all businesses until 2027. Meanwhile, workers will have to have been at their job for a certain number of months before they can draw benefits. For seasonal workers or low-wage, service sector ones who job hop frequently, that could mean paying into a system without ever being able to benefit from it. In response, the latest iteration includes an optional state-run program for those whose employers don’t offer paid leave, including seasonal workers and those at small businesses, but they would have to proactively pay premiums to get it.

Winter, the state senator, is aware of the criticisms. “We’re working really hard to mitigate or erase those concerns,” she said. Included in the bill will be a provision mandating that no insurers in the marketplace can deny selling someone a product, a community rating that will ban insurers from charging different types of businesses different premiums, and a risk adjustment mechanism that will make insurers who sell to less lucrative and possibly money-losing industries rather than more profitable ones whole. The bill will also stipulate that a denial of someone’s claim for leave will automatically be sent to the state Department of Labor, which will start processing it, and a fund will immediately begin paying benefits to the claimant while he or she waits. If the denial is found to have been unfairly made, the company will not just have to pay the benefit but also a fine as “an incentive for that not to happen,” she said. There will be proactive audits on how many claims insurance companies are denying to make sure there are no big outliers.

There will also be a trigger where, if the market ends up being prohibitively expensive, there’s not enough competition, or is otherwise not performing, a public option will be automatically created without further legislation needed. That’s “an incentive for the private market to perform and be affordable,” she said.

Still, that is all a complicated way of enacting a paid leave system. But Winter believes it is better than nothing. “Do I look millions of Coloradans in the eye and say, ‘Because we couldn’t have a perfect plan, you get nothing?’” she said. “We could fight for the model or fight for the benefits.”

Advocates are less certain. “All of these problems that come up with a private model are solved by having a social insurance plan,” White, of the Colorado Fiscal Institute, said. “We know how that is going to work and what the implications and the pros and cons and unintended consequences are going to be. We don’t have that with a private model.”

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The only state that has a private insurance program for paid leave is New York, but, as Howell pointed out, it exists alongside a “robust public option,” as the state also has a social insurance paid leave system. Without a public option, she fears that Colorado’s system will resemble what’s happened in the private Affordable Care Act marketplaces: “Insurers either run towards price gouging, or basically saying that if they aren’t allowed to price gouge, then they will not enter the market.”

It’s a fight that is not just isolated to Colorado. As Connecticut debated enacting paid family leave last year, Democratic Gov. Ned Lamont floated the idea of having a private insurance company run it, rather than the state, although the final bill that passed wasn’t structured that way. In Vermont this year, Republican Gov. Phil Scott vetoed a social insurance leave bill because he favors one administered by a private insurer. The legislature fell one vote short of overriding his veto. “This is really a national trend that we’re seeing emerge where private insurance companies are trying to cash in on a movement,” Howell said. “Private insurers have been seeing this rise of paid family and medical leave across the country, and they smell profit.”

“The private insurance market, disability insurance, and life insurance carriers are really interested in Colorado because they see this as a way of opening up a national market,” White agreed. “What we do here is going to have consequences for people in other states. So it matters.”