When Dallas-based BenefitMall takes on a new payroll client, the question of benefits is usually discussed. BenefitMall wants to know if the client offers health insurance, an 401(k) plan, etc. It turns out that more and more companies are not. In addition, the growing number of Americans working as independent freelancers in the gig economy generally don’t have access to those kinds of benefits. Something known as ‘portable benefits’ has been proposed as a possible solution.
Portable benefits are owned by the individual worker rather than being offered through an employer, according to the Brookings Institute. A number of think tanks and economists are suggesting that these benefits are the solution to a growing problem that is affecting more and more U.S. workers. But are they?
How Gig Workers Get Benefits
Because the idea of portable benefits affects mainly gig workers, concentrating on how those workers currently procure them is the smartest way to look at developing any future policy the government might put in place. To get to that place, it is important for lawmakers to fully understand gig employment.
A gig worker is every bit as much self-employed as a small business owner with one or two employees. The main difference is that the gig worker flies solo. He or she works one contract at a time, whether those contracts are short- or long-term. A ride-share worker is operating on a short-term contract with each individual passenger; an IT consultant might work on the security contract that takes months to fulfill.
In either case, gig workers have to secure their own benefits. They buy health insurance on the individual market while setting up their own retirement plans using IRAs, Roth IRAs, securities, and so forth. The model works well enough in theory, but it is not practical from the standpoint of affordability.
Individual Benefits Are Expensive
When the Affordable Care Act was first signed into law back in 2010, there was no shortage of fear that health insurance prices in the individual market would shoot up. They did. The fact is that individually purchased benefits are more expensive because they don’t have the power of pooling behind them.
Where a large corporation can generally see lower per-employee costs for health insurance, a self-employed gig worker pays full price for the same coverage. The reality of this arrangement is that gig workers, by and large, go without benefits because they cannot afford them.
How Portable Benefits Would Work
According to the Brookings Institute, portable benefits would be the right solution for gig workers in that they would be able to purchase them without having to take on the full burden of doing so. Under most portable benefits proposals, employers are allowed to contribute to benefit plans even though the benefits are owned by workers.
Different variations of portable benefits are already in place. They may be known as ‘multi-employer plans’ or ‘multiple employer welfare arrangements’. But there are no nationwide standards for such plans. What many of the experts are recommending is action at the federal level to standardize portable benefits so as to encourage more gig workers to take advantage of them.
Are portable benefits the right solution for workers in the gig economy? In theory, yes. In practice though, maybe not. Whenever the feds are introduced into something as complex as health insurance and retirement planning, even the best intentions can turn into onerous regulations that only make things worse.
Washington is working on portable benefits right now. We will have to wait and see what they come up with.