‘Employee’ vs. ‘contractor’ misses the elephant in the AB-5 debate: passing the law won’t win gig workers health insurance
By Daniel Barlow, executive director of Business for Medicare for All
California’s legislative battle over the “future of work” - which would have huge financial implications for companies like Uber, Lyft and DoorDash - is dancing around the elephant in the room: A new law to recognize gig workers as employees instead of contractors would extend health insurance, the most valuable benefit of “employment,” to very few gig workers. Why? Our antiquated system that ties health insurance to full-time employment.
California’s governor is expected to soon sign AB-5. The bill would extend traditional employment rights to gig economy workers who have historically been considered independent contractors. The tech companies who rely on this workforce claim it will upend their business model. The progressive politicians and labor unions pushing the bill say it will bring much-needed rights and protections to these workers.
At the center of this debate - unspoken in the headlines - is the prohibitive cost of providing health care to workers, by far the most costly benefit to employers and most valuable benefit to employees, offered by traditional employers to their full-time employees.
Even if these gig economy workers become employees at companies like Uber, they will likely become employees without employer health insurance.
Employer-sponsored health insurance has been the hallmark of a good job since businesses began offering it as a recruitment tool during World War II and the wage freezes of the 1940s. These costs were initially minimal and a no-brainer for businesses. Offering health insurance meant attracting and retaining a healthy and productive workforce. If you couldn’t offer a worker more money, you could offer to pay for most of their health care costs.
Flash forward 80 years and the system is outdated. The employer-based health insurance system - backed by a few corporate health insurance companies profiting handsomely off the status quo - has driven the cost of hiring a worker dramatically higher for all employers. The cost of a family plan to an employer in 1999 was about $5,000 a year, according to the Kaiser Family Foundation. Today, that cost is nearly $20,000 -- a 400% increase over two decades where inflation rose only 54%.
That annual $20,000 cost is the difference between employing traditional employees with health insurance and gig economy workers. For companies like Lyft and Uber, with workforces centered in America's most expensive cities, costs could be even higher. And given most gig economy workers do not work those jobs full-time, their health insurance could cost employers more than the income their work generates -- a startling example of how unreasonable and costly our employer-based health insurance system has become.
How, then, will gig companies survive the passage of AB-5 if it says gig workers must receive health insurance? They’ll draw on regulations found in the Affordable Care Act (ACA) and state law. The vast majority of people in the gig economy work limited hours, falling far short of the 32 hours of work a week necessary to be considered full-time employees under ACA rules. That rule was created to force employers to provide insurance to their employees. But it was written before companies like Uber existed, and it’s quickly become obsolete.
At Lyft, 91% of drivers work less than 20 hours per week. At Postmates, nearly 90% of delivery workers perform only 3-5 hours per week. It would be a logistical nightmare - much more complex than even the current employer system - to extend health care benefits to these workers. Drivers with rideshare companies, for example, have neither a set schedule or an obligation to continue the work - how would a company pay health insurance to someone who only worked once for them and never again?
And even for gig employees who work more than 32 hours a week, the burdensome cost of health insurance offers little incentive for companies to begin offering that benefit. In fact, the ACA’s tax penalty for not offering insurance to full-time employees was designed to incentivize companies to offer health insurance - but it does the opposite because the penalty is much lower than the cost of insurance.
The average annual premium for a California health plan in 2017 was $8,712 for a single person and $20,843 for a family. Those are high costs for an employer - the price tag on the family plan is essentially equal to paying an employee working 40 hours each week $10 an hour. The alternative is to pay the tax penalty, only $2,500 per year for each full-time equivalent employee.
Three-out-of-four contract and temporary workers don’t have health insurance, according to the Bureau of Labor Statistics. These workers have much in common with the growing ranks of full-time employees at small and mid-size companies whose owners can no longer afford to provide health insurance to their workers.
The solution, especially within the context of the AB-5 debate, to exploding health insurance costs is the same: The creation of a national payment program that pays for health care without being tied to a person’s job. This system would maintain costs, enable businesses and workers to pay their fair share and move the U.S. closer to a system that supports workers who often have two or three jobs in the 21st century economy. All workers - gig or otherwise - would have health insurance and all businesses would have a role to play in helping pay for that system, but in a way that is fair, sustainable, and good for the economy.
Medicare for All is the crucial first step toward the creation and implementation of a system of portable benefits - ones that follow workers from job-to-job and career-to-career and are not eliminated or disrupted by a change of employment. As a national business coalition representing companies from small, traditional employers to large manufacturers and gig corporations, we are most concerned with real-world results — for workers and their employers. Regardless of whether AB-5 passes, it’s crucial California’s labor unions, gig companies and elected leaders acknowledge they remain at the mercy of a 1950s health care insurance system that prevents extending affordable health care to a modern workforce.
Daniel Barlow is the executive director of Business for Medicare for All, a coalition of business leaders who believe that guaranteeing health care coverage for Americans regardless of where they work is critically important to maintain profits, grow wages for working families, spur entrepreneurship and compete globally. Find more at www.businessformedicareforall.org.