Covering The Masses: Exploring Benefit Models Of The Future

For many working Americans, healthcare benefits are a foregone conclusion. Dental. Vision. Medical. Some even get paid family leave on top of what is guaranteed by the Family Medical Leave Act. The fact that the term “benefit” is used to describe such employment-based access to affordable healthcare is instructive about American attitudes on health insurance. But such benefits in America come via a completely binary scenario. You’re either a protected employee, where you get healthcare and all the social protections of employment, or you are classified as an independent contractor due to a part-time schedule, and you get nothing.

For employers offering such benefits, the costs are expensive, with companies shouldering on average around 30% for premiums – a very cost prohibitive solution for low margin employers. The result is that, increasingly, businesses are redefining workers to “independent status" or reducing their allowable working hours in order to avoid having to provide benefits. Under the Affordable Care Act, businesses with more than 50 employees must provide healthcare for anyone working more than 30 hours per week. Thus, the enactment of the ACA in 2010 accelerated employers’ incentives to limit worker hours by creating, in essence, a hard cap against eligibility for job-provided health care. In fact, the rise of the so-called gig economy was in significant part driven by such hard caps. Workers limited by these caps began seeking to supplement their volatile and capped hours with flexible "work-your-own-schedule" jobs such as Postmates or Lyft.

The real benefits for the almost 60 million shift workers who fall into this “gig” category in the US today are autonomy, independence, choice and the ability to fill their own schedules and wallets as needed. But how can one shore up in the event of a medical disaster? Why must medical benefits remain a convention of the 40-hour work week? To date, there is no real solution, and there are no unions through which to bargain collectively. But there is hope. In fact, some legislators are starting to take notice, as well as action. For example, in May 2017, Senator Mike Warner (D-Va.) proposed the Portable Benefits for Independent Workers Pilot Program Act, which aims to use funds through the U.S. Department of Labor to design and test new models for portable benefits, as well as assess the efficacy of current methods. While this is an encouraging development, the private sector is leading the way with a few vanguard concepts, all of which point to a tremendous business opportunity.

An approach that has been around since the early 1960's is employee leasing, sometimes in the form of a Professional Employer Organization (PEO). Historically, businesses used a PEO to save time and manpower needed to prepare payroll and administer benefits plans, as well as reduce potential legal liabilities and obligations to employees. In effect, employers pay the PEO, which then standardizes payments for the worker across multiple client companies. These PEO platforms are in an ideal position to aggregate benefits for workers, thereby providing much-needed access and affordability.

Another novel concept – already in play– is "use as you go" insurance. In essence, the benefits under such coverage would be proportional to the number of hours that a contingent worker spends with a particular employer on a monthly basis. The incentive is for the employer to be able to pick workers into this system and set up standards for program entry. This activity-based allocation of benefit costs is powerful because it aligns incentives and output while helping the employer set standards for entry point into this program. The company is able to weigh the cost of this "use as you go" model against the cost of churn, cost of re-training, and the cost of worker acquisition.

Perhaps the healthcare cost model of the future, however, is one that allocates a pro rata contribution across multiple employers. Imagine the typical on-demand worker today, who in a single week may work 10 hours at Wal-Mart, another 10 driving for Uber, and perhaps another 20 for a popular clothing retailer. In a pro-rata contribution scenario, costs are structured and split based on average usage across employers. This ability to pool cost exposure with other companies will allow businesses to capture the benefits of healthcare provision – such as lower turnover and better reliability – without having to commit to a full 30% increase in costs. Further, workers can independently pay a share as well, ideally allowing them to dramatically reduce their own benefit costs while likely opting for a better coverage plan.

As labor platforms rise, and the fight for the best worker becomes more competitive, we will need to be imaginative in order to come up with solutions that best provide for laborers. By putting benefits such as healthcare as front and center, the new resulting safety net will be significantly stronger than the employment models of the past and usher in an era of being rewarded with better coverage for more independent work.

We do know this can work. A useful analog is Metromile, which is a car insurance company that provides liability and collision insurance on a per mile basis to drivers such as those working for Uber. There is a big need, and a big opportunity, and it is clear that the benefits of a new model of health care delivery for independent workers will be game-changing for millions.

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