On October 1, 2019, the Department of Paid Family Medical Leave (“DPFML”) announced insurance carriers which have been approved to sell a fully insured solution to satisfy a private plan exemption under the PFML.
A link to that announcement is here:
How does the insured solution work?
At this point in time, the Massachusetts Division of Insurance (DOI) has yet to approve any PFML insurance policies for sale (or premium rates for those policies). However, the DOI has approved the issuance of a Declaration of Insurance by insurance carriers as a stop gap measure. A Declaration of Insurance is, in essence, (1) a pledge by the employer to purchase an insurance policy when it becomes available and (2) an IOU by the carrier that it will deliver an insurance policy to the employer once it is approved by the DOI. The Declaration of Insurance will allow an employer to obtain an exemption while the DOI and insurance carrier continue to work on the content and requirements of a final insurance policy. The final insurance approval process is expected to take several additional months.
If an employer wishes to pursue a fully insured private plan exemption, it must obtain a Declaration of Insurance and file that together with a request for exemption. The application will likely be provisionally approved, exempting the employer from contributing to the state program, but requiring the employer to later submit the approved insurance policy to the DPFML after issuance by the carrier. The typical approval turnaround on the exemption request is 1-2 business days.
Can an employer save money with the insured product?
Yes. Depending upon the insurance carrier, an employer could save a significant amount of money by being able to avoid contributions to the state program. Some carriers are permitting an employer to defer the paying of premium until January 1, 2021 provided certain conditions are met.
Is there any risk with going with an insurance solution now?
Yes. There are two primary risks, which an employer must weight against the benefit of premium avoidance.
The first risk is a penalty for what is called employee “dumping.” “Dumping” is when an employer signs up for insurance now, but later changes its mind, and enrolls in the state program without having paid any contributions. The informal guidance discussed by the DPFML is that if an employer “dumps” its employees into the state program before or on January 1, 2021, it could be liable to the state for all past due contributions (which could amount to 15 months of payment). Even is the “dumping” takes place after January 1, 2021, and after an employer has paid some premium to a carrier, the DPFML it is contemplating a penalty of approximately 4 months of contributions. The penalty amount and structure has not yet been finalized.
The second risk in the insurance solution is the lack of historical claim data that would provide the employer with insight into future rate increases. There are historical instances (i.e.)
Individual and Group Long Term Care Insurance, Own Occupation Individual Disability Policies with Life Time Benefits) where carriers have aggressively jumped into a new risk market, underappreciated and underpriced the risk, and later dramatically increased premium rates or exited the market altogether.
How does an employer make a decision?
Any decision ultimately turns on the richness of the employer’s current leave policy and its leave philosophy, the employer’s benefit culture, and the employer’s appetite for risk. There are no perfect one size fits all decision trees for employers.
For example, if an employer has a high degree of certainty that it will stay in the insurance market once a fully insured product is available, it may make sense to get a Declaration of Insurance from a carrier and apply for the exemption now. Some of our clients are pursuing this path.
On the other hand, if the employer, although desiring an insurance solution, wishes for more information about possible dumping penalties if it were forced back into the state program, it may want to wait until later this year or early 2020 to revisit the issue. Some of our clients are traveling this path by either self-funding temporarily or enrolling in the state program now with the intention to come out later.
Finally, if an employer has a rich, self-funded salary continuation program already, it may want to make some modifications to the program effective January 1, 2021 and self-fund.
To sum it all up, as an employer, you might want to ask the following questions:
- Do you already have a salary continuation program funded through general assets?
- Are you 100% committed to a fully insured solution based on all the information you have now?
- If you are not 100% committed to a fully insured solution now, do you want to self-fund temporarily (and avoid paying contributions to the state) or go into the state program at least temporarily?
- How much would you save by avoiding paying contributions to the state program? Note: The DPFML website has a contributions calculator.
- Has the carrier been forthright with you about potential down the road risks?
- Notwithstanding the ability to get an exemption, does your Massachusetts employee headcount or current leave philosophy/benefit program make the state program a very simple and attractive destination for you?
If I am already signed up with the State program, how do I switch to a private fully insured exemption?
You can apply for an exemption at any time. If approved, the exemption would be effective on the first day of the first quarter following its approval. If you apply now or before December 20, 2019, your exemption would be effective January 1, 2021.
If I am already approved for a self-funded private plan exemption, how do I switch to a fully insured private plan exemption?
Because you are changing your self-funded exemption to a fully insured exemption, you would need to apply for a new exemption. If approved, the exemption would be effective on the first day of the first quarter following its approval.
When can I expect more guidance?
The DPFML and the DOI have scheduled hearings on this topic on October 8 and 22nd at the DOI in Boston. We will alert you to material developments.