It’s not often that something with the stultifying title “Actuarial Analysis” can rekindle one of the biggest partisan battles of the 2023 Minnesota Legislative session. Achieving that distinction is an independent look at how much the state’s paid family and medical leave program will cost.
Released last month, the report’s short answer is more. The long answer, because this is an actuarial analysis, after all, is more complicated, but still ends up at more.
The short answer, though, was more than enough for the plan’s Republican critics to want to say, “I told you so.”
“The Christian in me doesn’t. The policy person in me does,” said Sen. Julia Coleman, R-Waconia. “This was something we flagged. We pointed out that the math wasn’t adding up here.” Republicans complained both that the program was mandatory and that Minnesota’s version had among the most-generous benefits of any of the states that have created similar programs.
“But it had one of the lowest tax rates. It didn’t make sense,” Coleman said. The actuary supports that concern, saying the payroll tax rate in the bill is too low to support the program, which will cost upwards of $600 million more in the first three years.
Backers of the plan, however, said the actuarial analysis brought no significant worries. House File 2 that passed by narrow party line votes was signed by Gov. Tim Walz last May.
“The study is exactly what we were expecting,” said Sen. Alice Mann, the Edina DFLer who led the push for the bill through the 2023 session. She sees the numbers from a different perspective: The rate of 0.7% of taxable wages sponsors included in the bill is pretty close to the 0.78% the actuary suggested for the first three years of the program, she said.
“That’s 50 cents per person per week,” Mann said of the higher premium. “So it’s not like we were off by a significant margin, whatsoever.” Mann said the proposed higher rate is well beneath the law’s cap of 1.2% of wages paid.
“What bothers me about this is that putting in the cap was a bipartisan effort, knowing that the premium would fluctuate year-to-year,” she said. “To have people say ‘we knew it was going to go up’ is the definition of disingenuous politics, and it makes me sad that they are using paid leave to do this because it is going to impact so many people’s lives positively,” Mann said.
In addition to Republican lawmakers, some of the lobbyists for employer groups think the program should be adjusted to make the 0.7% premium rate adequate. That is, they propose changing the benefit package to make it less expensive rather than increasing the premium to meet the current benefit package.
The 0.7% payroll tax was what backers of the program said was reasonable for businesses to pay, said Lauryn Schothorst, who worked on the bill for the Minnesota Chamber of Commerce. “Then keep with that and keep the program’s scope to be in line with that,” she said. “Don’t increase the tax. Let’s tighten up the parameters. Let’s bring the program into that cost.” When introduced back in January, the bills had a 0.6% premium rate.
“Our members can’t understand how anyone, with a straight face, can suggest that a percentage increase like that and hundreds of millions of dollars is right on target,” Schothorst said. Suggested changes from business could include the length of paid leave, the definition of family for when a worker gets paid leave to care for others and the percentage of wage replacement.
Coleman has even suggested that a special session could work on the issue before the next regular session convenes Feb. 12.
Mann says she doesn’t support those changes, either in a special session or in regular session. DFLers will continue to control the Legislature next year and will hold at least the Senate and the governor’s office through 2026.
“The study, again, is well within the range of the bill,” she said.
A DFL centerpiece
It isn’t by chance that the House and Senate bills were the second bills filed last session. Paid leave was a centerpiece of the DFL agenda that has received national attention for its sweep and its success. Nearly every item on the to-do list of the majority caucus passed and was signed by Walz.
Premiums will begin on Jan. 1, 2026, the same day that workers who qualify for leave can begin making applications. Most workers will become eligible once they earn $3,500 over a period of a year.
Paid family and medical leave is similar in concept to unemployment insurance that also collects premiums that are a percentage of taxable wages. That money is collected in a trust fund and is paid out to workers who become jobless. The premiums are set by the state to cover the cost of benefits and to maintain a reserve for increases in demand.
The state’s paid leave program will also collect premiums that can be shared equally between employers and employees, though employers are allowed to cover the entire premium cost. If workers qualify for payments, they can get weekly checks based on their wages, with lower-paid workers getting up to 90% of what they would have received. Higher-paid workers would see a lower percentage of their pay reimbursed.
Payments can last up to 12 weeks for a single qualifying event such as the birth of a child or the need to care for a family member. An individual worker can be paid up to 20 weeks of medical and family leave if they have more than one “qualifying event” during a single calendar year.
A different program covers workers who are injured on the job.
That there is even an actuarial analysis to argue over reflects one of the few GOP amendments that was accepted by the DFL sponsors of the bill. Sens. Jordan Rasmusson of Fergus Falls and Eric Pratt of Prior Lake pushed to have a third-party expert look at the plan.
The study started with the plan’s benefits paid to people who miss work for non-work-related injury or illness or who take time off to care for family members. It then examined state employment data to measure how many people might tap the benefits, the amount of wages paid. Finally, it looked at the experience of the eight states that have created similar insurance programs and have several years of experience.
Paid family leave math at a glance
- 17 — The number of legislative committees the program went through before passing with narrow, party-line votes
- 0.7% — The payroll tax included in the family and medical leave bill that passed
- 0.92% — The high-end of a possible rate needed in the second year of the program, according to Paul Correia of the actuary firm Milliman. The study showed that in that scenario, the rate would drop to 0.78%, 0.86% and 0.84 percent in the following years.
- $1.22 billion — The cost of the program in the first year of collections
- $1.69 billion — The cost of the program in the second year, which is the reason for the fractional increases in payroll taxes
- 1/3 — The portion of benefits that will go toward family leave, according to assumptions made in the report
- 2/3 — The portion of benefits that will go toward medical leave, according to assumptions made in the report
Payroll tax rate change?
The new law already gives DEED the authority to increase the payroll tax to meet the needs of the program. That is, if payments to workers exceed what the starting rate of 0.70%, the agency can increase the rate to meet projected payouts.
The Milliman report, however, suggests a different approach to smooth out the ups and downs of annual rate setting. The report states that by bumping the rate to 0.78% immediately, the program could be funded at that rate until an increase to 0.83% became necessary in 2029.
Mann supports that change.
Mann, a physician, said she continues to believe the new law benefits individuals, families and the state as a whole. People who get sick, have a child or need to leave work to care for a sick family member will have some ongoing income. And states with paid leave programs see improved health outcomes, from fewer ear infections to reduced hospital visits. It was also pitched as a way to let smaller businesses compete with larger businesses, many of which have paid leave among their employee benefits.
About 25% of American workers have access to paid leave.
The Minnesota program was aided by the existence of the state’s massive revenue surplus. Other states had to start collecting money from the payroll tax and then wait until it accumulated enough reserves before benefits to workers could be paid. Because the DFL majorities devoted $668 million from the surplus to both set up the bureaucratic apparatus to run the program and to establish the reserves, the tax collections and benefit payouts can start simultaneously on Jan. 1, 2026.
Coleman stresses that she’s not opposed to paid family and medical leave. She produced a rival proposal that would use tax credits to coax employers into offering the coverage to employees via private family leave insurance.
“Would it have filled every gap that we have in the system? No,” Coleman said. “Would it have done more to cover those not currently covered by paid family leave? Absolutely.”
Coleman’s proposal would not have included a payroll tax. “I even have liberal constituents reaching out to me saying, what are you going to do about inflation,” Coleman said. “Minnesota families are feeling it.”
The state agency charged with building the program over the next two years considers the actuary’s study to be important information to guide that process. Evan Rowe, the deputy director for workforce services and transformation at the state Department of Employment and Economic Development, said the agency is reviewing the results to see if it suggests any adjustments to the program.
“It’s a really helpful piece of information that we worked with the independent actuary to complete,” Rowe said. “It provides useful information. As for what will come next? We’re going to carefully look at it, we’re reviewing the recommendations.”
The end of the year is when the administration puts together its supplemental budget and any other requests of the Legislature “and we’ll be looking at the recommendations of the actuary in light of that … but we haven’t made any decisions on that.”
But Rowe echoed Mann’s conclusion, that the numbers in the report are within those used during the legislative session and well below the cap.
“The projections from the actuary say that the program will never get close to that cap,” he said.
Even the higher rates the actuary said would be needed in Minnesota are lower than what is charged in California, Colorado and Oregon, though they exceed the rates in Massachusetts, Connecticut and New York. State-by-state comparisons are difficult, however, because each state offers different benefits and eligibility.
Editor’s note: This story has been updated to correct the names of Sens. Jordan Rasmusson of Fergus Falls and Eric Pratt of Prior Lake.