Our Portable Benefits Future is Here. Who Will Write the Rules of the Road?
Whether we administer portable benefits through the public or private sectors will have profound effects for workers, companies, and the economy.
Debates about contract worker classification continue to rage across the country and show no sign of easing — or consensus. At the same time, there is a growing consensus that the traditional employer-employee relationship around benefits is broken and it’s time for a new model. Providing benefits like health insurance through employers no longer makes sense when nearly half of working Americans have multiple jobs — rather than a single, full-time job — and a growing number are doing part-time work, gig work, or freelancing.
In today’s world, benefits should be portable, meaning they’re tied to individual workers instead of a particular employer or work platform. As more people take on part-time or gig work, they demand the flexibility to change jobs, start their own businesses, or pursue other new opportunities without sacrificing the financial security of steady benefits. And businesses want to focus on their core operations instead of wasting time and resources administering benefit plans.
We need to reimagine our benefits system as one built for people first; not for companies first. One where companies may contribute but no longer control the financial security afforded by your benefits
How would that work in practice? Policymakers across the country are putting ideas forward, and current innovation in this space is about to teach us a lot about what works and doesn’t. Small differences in policy design could lead to big changes for workers, businesses, and the economy. I'll break down some of the proposals out there to evaluate their strengths, weaknesses and the opportunities they create.
Portable Benefits “accounts” and "funds" are rising to the fore
Most policy proposals involve creating individual accounts for workers that can be used to pay for benefits and that they can take with them from job to job. But there are key differences in terms of how these accounts would be structured, funded, and administered. One approach is what I would call “centralized” benefits programs, similar to Social Security and Medicare, where employers or contracting entities pay into a state-run fund and the government handles administration. By contrast, in a “decentralized” model, workers directly elect which benefits & withholdings they want to allocate to insurance, flexible paid time off, or taxes — in an account which they control and without involving another new government bureaucracy.
Decentralized Portable Benefits Accounts
In decentralized portable benefits account models, companies’ contributions would go directly to accounts that workers can access to purchase benefits, with no government middleman. It’s similar to payroll benefit allocations today, with the added benefit of supporting an ecosystem of multiple platforms or jobs, each contributing to those benefits.
The way those contributions are used to purchase benefits look slightly different in each state's proposal. For example, a recent Massachusetts proposal would require companies to contribute to a portable benefits account from which workers could withdraw funds for a variety of “permissible uses” like purchasing health insurance, saving for retirement, or covering lost income due to sickness or accidents. Each company, or stream of income, would contribute in a pro rata fashion to this fund for their workers in a given time period. This bill is still in early stages, but it provides a glimpse of what decentralized benefits could look like.
Other decentralized proposals are similar — like the ones that would be created by a 2018 proposal in Georgia and a proposal this year in Vermont, each of which mirror a similar proposal from New Jersey — but reflect a model where companies would send contributions to a third party, non-profit benefits administrator selected by workers. The similarities of this model to existing, successful payroll-based benefits allocations should give us confidence in its viability. But the details matter: in the legislative text of the Georgia and Vermont proposals, the only eligible benefits administrators would be non-profits (including labor unions). That may risk undermining a huge potential benefit of this model which otherwise invites innovative private sector technology companies to offer a variety of smart, user-friendly experiences to select and access their benefits.
If delivered the right way, decentralized models also introduce the potential for more seamless integration between existing benefits systems with both payroll and contractor payments systems – which are already used by the vast majority of independent contractors. This model would allow work platforms or employers to integrate benefits contributions into the accounts and payments systems that workers already use, rather than adding an entirely new, decoupled account to navigate.
California’s Prop 22, a measure that maintained rideshare & delivery gig workers’ classification as independent contractors while adding new protections and benefits, is the most prominent recent example of a half-step towards a decentralized model. It’s a viable model, but it was not constructed to go so far as to create ongoing “account” structures that might simplify independent contractors’ engagement with its benefits. Under Prop 22, certain companies are required to offer healthcare stipends to gig workers based on several criteria, including the number of hours they work. For example, rideshare platforms like Uber and Lyft send a health insurance stipend — dictated by the number of hours they work on each platform — directly to drivers to reimburse them for whatever insurance they choose. California voters strongly approved the plan in 2020, but it’s currently facing judicial challenges, with oral arguments in the most recent case set to begin December 13, 2022
It’s important to recognize that decentralized models aren’t without their potential structural downsides. Most notably, these models may make company contributions harder to track, which could lead to a lack of compliance. However, with a digital paper trail and effective integration with other systems, including tax prep, compliance could be simplified. We would need a strong backbone of external regulatory checks and compliance to protect workers; the good news is we already have an established ecosystem that is used to police the regulations around the traditional ERISA-driven benefit system which may be adapted to protect individuals in a multi-gig, multi-contribution environment.
Centralized Portable Benefits Funds
Centralized benefits generally require companies and workers to pool contributions into one place – crucially, typically an account run by the government – before they are distributed to individual workers. CalSavers, a state-managed retirement savings program in California, is a successful example, with over 100,000 employers and about 362,000 employees currently enrolled. Employers contribute a portion of their workers’ earnings to the fund, which workers can then carry from job-to-job. Workers can also contribute through multiple employers at the same time – something 35% did last year.
Building on this model, under Pennsylvania’s approach to portable benefits in Senate Bill 949, companies with app-based gig workers would contribute to a fund administered by the state and disbursed to individual workers to pay for a range of benefits (and those workers would retain independent contractor status). In this case, that fund – which is effectively run by the government – determines which benefits are available to which workers.
The greatest “pro” for this centralized model is that it would create a singular entity responsible for covering nontraditional workers. Since most gig workers use multiple platforms and hold other non-app based positions, often without sustained relationships, they may find it more comforting to rely on the state to oversee their benefits. Centralized portable benefits would also allow strong oversight, ensuring workers receive earned benefits across the board, regardless of the size or structure of the company. This oversight may make it easier for companies to ensure they’re complying with relevant labor laws, which would reduce the risk of litigation.
On the other hand, new centralized systems would create bureaucracy and increase the government’s role in areas that might best be left to the private sector. Historically — such as in the infamous rollout of healthcare.gov — the government has struggled to take on complex new administrative responsibilities, doubly so in healthcare. Digital government resources are less likely to be user-friendly and responsive to an individual’s personalized needs than those created by the private sector. In models like Pennsylvania’s SB 949, we are also poised to see more paternalistic selection of qualifying benefits by the government rather than opening up choice to consumers.
These responsibilities may be better left to a robust, existing ecosystem of benefits brokers and financial advisors. Moreover, state oversight could introduce added administrative costs that would likely be borne by companies or by taxpayers, while other models would be funded entirely by the private sector, as we see today in 401k plans and other group benefits models.
Where do we go from here?
Moving toward portable benefits is a step in the right direction. But the way we take that step matters.
Luckily, as states continue to work out their answer to the question of how to provide portable benefits, we have witnessed a rapid increase in the pace of new ideas. In Ontario, the Ministry of Labour has commissioned a Portable Benefits Advisory Panel that’s currently conducting a study aimed at creating a new approach to providing benefits for the modern mobile workforce and appears poised to move swiftly. The results of that study could provide insights to guide innovation here at home, too.
When weighing all the pros and cons, I find the benefits of decentralized models particularly compelling as they offer minimal red tape in the form of regulatory hurdles. Decentralized models strike the right balance of government oversight — similar to the role our government already plays in employee benefits regulation — while leaving room for the right kind of innovation and economic efficiency by relying on companies to more directly bear the costs of worker benefits. And who among us would want the government to manage their next bank account?
Decentralized models give workers more choice and flexibility which, alongside increased financial protections, are top of mind for all workers today: Stride’s recent survey data showed that 81 percent of gig workers are happy with the freedom and flexibility their work structure provides, and a majority said it’s less stressful than a traditional job.
And innovation is on our side — the flexibility of digital banking infrastructure allows for a more robust system than could have been imagined just a decade ago, enabling account structures and consumer experiences that allow benefits to be delivered elegantly across multiple streams of income and a variety of existing consumer accounts, with digital paper trails to bolster regulatory oversight. It will only get easier over time.
The key to making this model work will be finding a way to deftly navigate the multi-job, multi-contributor factors that present unique challenges in today’s labor economy. Doing so will allow us to ensure we can deliver all workers the benefits they deserve, the support they need, and the flexibility they demand.
