The Future of Portable Benefits is Here... and It’s Not Just for Gig Workers
ICHRAs allow workers to pick their own health insurance while their employers pay the premium—next, we should expand HRA-eligibility to all types of work arrangements.
The most important innovation in portable benefits is coming from an unlikely place: traditional employers. While we often think of portable benefits as a solution for the highly mobile independent workforce of freelancers, gig workers, and self-employed entrepreneurs, traditional employers are already experimenting with giving their employees tax-advantaged stipends to buy their own coverage.
Our economy is more dynamic than our benefits system
This innovation comes at a time when it's clearer than ever that workers across the economy—regardless of classification—are seeking flexibility and choice. The old employer-based benefit model isn’t working: it’s too rigid and provides little choice for workers, is too cumbersome for employers, and is too static for an economy that depends on dynamism.
Leaving it to employers to be the primary source of benefits like health insurance may have worked in an earlier era when Americans stayed at one job for their entire career, but it’s woefully inadequate today when the average American holds 12 jobs in their lifetime. The cracks in this system have also never been more evident than at the height of the pandemic when more than 14 million workers lost their jobs and also lost their health insurance—in the midst of a global public health crisis! At the same time, another 36% of the US workforce tried freelancing for the first time, but freelancers too are left out of this broken benefits system.
Today, as millions change jobs and pursue new opportunities as part of the Great Resignation, the old employer-based system simply can’t keep up – in fact, it’s holding us back: research shows that as many as one in three Americans who currently have employer-based health insurance would leave their jobs and try something new, like starting a business of their own, if they weren’t worried about losing coverage. That doesn’t just curtail their dreams and earning potential, it deprives our economy of innovation and productivity gains. This outdated system also burdens employers who unleash economic flexibility by embracing distributed, remote work models, but are seriously challenged to broker benefits across dozens of states.
A new regulatory rule presents a new solution
Fortunately, there’s a better way. Individual Coverage Health Reimbursement Arrangements (ICHRAs) allow employers to provide employees with tax-advantaged funds to purchase health insurance through Affordable Care Act marketplaces. And the best part? Employees can then take their benefits from one job to the next. They’re portable and come with the ultimate choice of your own doctors, prescriptions, and benefit designs available in the marketplace.
While that might sound like a solution designed to help Uber drivers and DoorDash couriers, ICHRAs are actually being pioneered by traditional W-2 employers who seek to provide greater flexibility for employees, control their own costs, and unlock dynamism in the labor market.
As the CEO of Stride Health, a platform that helps all kinds of workers find and access benefits, I have watched ICHRAs start to transform W-2 benefits and see tremendous potential to transform the 1099 economy. But right now independent contractors aren’t eligible for ICHRAs because the rule that created them ties eligibility to worker classification. According to the IRS and other federal agencies, health reimbursement arrangements like ICHRAs are for “employees” – not “contractors.”
Regulators should double-down and expand the HRA model
This is a call to action: this regulation should be expanded so that contractors – and all workers regardless of classification – can receive tax-advantaged contributions from any type of work arrangement. This reform would fuel innovation for millions of 1099 workers . There have been big debates about how to classify independent workers, but imagine a world where we put those debates to bed and, instead, offer an innovative model for gig platforms and anyone who hires 1099 workers to provide pro rata contributions to benefits those workers choose for themselves. While state-by-state efforts to require some form of health benefits stipend for 1099 workers play out, there’s no reason we can’t immediately unlock innovation by unleashing ICHRAs on the entire 1099 economy as a model for accelerating independent, portable benefits. This is a national challenge that deserves a national solution.
Here’s why job creators, benefit providers and policy makers should pay close attention:
ICHRAs are a win-win: they’re good for workers and good for companies. ICHRAs streamline the benefits process by letting employees choose the best package in their area and for their families. Companies can even opt to offer ICHRA coverage to one class of employees—for example, those based out of state—while maintaining their usual coverage for other classes. ICHRAs can also make employers more competitive in the job market by expanding the net of possible coverage, allowing them to attract workers who would otherwise be turned away by limited plan options or geographic limitations.
ICRHRAs could help strengthen the ACA marketplaces by increasing enrollment – thereby expanding the risk pools and stabilizing premiums – while encouraging health plans to continue adding new benefits to meet the demands of this segment. This would be especially important if Congress fails to extend subsidies provided through the American Rescue Plan, which could cause premium spikes for millions of Americans or force them out of the marketplaces altogether.
ICHRAs provide greater flexibility to employees with specific care needs by providing them with access to a diverse marketplace of medical benefit plans, rather than a limited pool of one-size-fits-all options. While group benefits are expensive and difficult to change, individuals can change plans easily under ICHRAs, without impacting their employer. Just imagine what this would mean for the 1099 economy: for the first time, workers could receive contributions from their work platforms or marketplaces, without the shackles of a full time employment model.
Policy innovations like ICHRAs are the next step toward building a more resilient benefits system that meets the needs of a rapidly changing and dynamic workforce. To accelerate this trend, regulators should expand the definition of “eligibility” to any type of work arrangement for the next wave of portable benefits in ICHRAs, and more employers should sign on.
The innovation that contractors and the rest of our economy have been looking for is already here — now it’s up to employers and policymakers to determine whether it flourishes.
