As paid parental leave becomes more common (and expected), many employers face a critical decision: Should you self-fund this benefit or fully insure it? At the 2024 Parental Leave Summit, we were joined by Rich Fuerstenberg, Senior Partner at Mercer's Health practice. Rich brought decades of insight to a timely conversation with Dirk Doebler, Founder + CEO of Parento, as they unpacked the current state of paid parental leave policies and what employers should consider when deciding how to fund them.
Paid parental leave is no longer just a perk. Mercer’s found that 73% of employers now offer paid parental leave, a significant increase from just 26% a decade ago. Despite this growth, the median leave duration has remained fairly short, typically between two and six weeks. Paid parental leave programs also vary widely by industry. Employers in high-wage, white-collar sectors (such as tech, biotech, and financial services) are more likely to offer paid leave, while industries with larger hourly workforces (manufacturing, transportation, retail, and healthcare) are still catching up.
And while offering paid parental leave is growing, many companies still struggle with the practical and financial implications of offering paid leave. There are four areas to consider for the conversation around self-funding versus fully insuring paid parental leave.
Plan design is the foundation. Employers must determine whether leave will be taken all at once or in parts, how many weeks will be provided, and how inclusive the policy will be. Are you covering just birth parents? What about families who choose adoption, surrogacy, or foster care? The more inclusive and flexible the design, the more likely employees are to take advantage of paid parental leave.
Cost is about more than just salary continuation. In addition to direct costs like paying an employee while they’re on leave, employers need to consider the cost of replacement labor or the impact of work not getting done. Many companies also fail to account for administrative costs or coordination with state-mandated benefits that could reduce expenses.
Risk and volatility are major concerns of self-funding, especially for small and mid-sized companies. A single highly compensated employee taking a full leave could blow past the annual budget. Industries with large hourly populations are more likely to face a one-to-one replacement cost, making the overall expense unpredictable.
Finally, employee experience should not be overlooked. Employers want people to take their full leave, but it takes thoughtful processes and practices to make that possible. Policies that are hard to navigate or require piecing together multiple systems can frustrate employees, managers, and HR.
Paid parental leave insurance can simplify this by employees remaining on payroll throughout the parental leave. The Parento program goes above and beyond by bundling coaching, claims support, and benefit coordination into one streamlined solution with the insurance product.
“If your CFO expects your program to cost no more than X, and it exceeds that, your job and your company’s financial risk are on the line.” - Rich Fuerstenberg, Senior Partner at Mercer
Fully insuring takes the guesswork out of budgeting and removes the financial risk of higher-than-expected utilization. It allows employers to confidently say, “We’ve got this covered,” without overburdening HR or putting financial targets at risk.
Dirk added that even larger companies with self-funded health plans often start with an insured parental leave policy to test the waters, and later shift to a self-funded model once they better understand usage patterns and costs.
Unlike disability benefits where the goal is often to help employees return to work quickly, Parento’s parental leave program aims to encourage full utilization. That’s why employers often see increased usage (and even birth rates!) in the years following implementation of a more generous policy. Rich noted that in some cases, the behavior of employees shifts so dramatically that past data becomes irrelevant for future planning. That’s yet another reason to consider insurance in the early stages.
“If it were truly free to self-fund, you’d see companies offering six months or a year of paid leave. But they don’t. That tells us there’s more to the story.” - Dirk Doebler, Founder + CEO of Parento
Now it’s time to figure out what the best option is for you. Here are a few action steps employers can take today:
At Parento, we offer both self-funded and fully insured programs. Our program is gender-neutral and EEOC-compliant, providing between 6 to 16 weeks of paid leave at up to 100% pay. We’ve built our model to give companies of all sizes the ability to confidently offer equitable, comprehensive paid leave without the stress or surprise costs (including medical costs). Paid parental leave is a reflection of your company’s values, not just a policy. So whether you choose to self-fund or insure, the key is to ensure the benefit is sustainable, inclusive, and aligned with your business goals.
