Changing Nature of Employer Benefits

It’s very important to underscore that benefits are changing dramatically for the W-2 workforce as well. Employers are largely moving away from being “mini welfare states” that provide lifelong security and a comprehensive set of benefits to their employees. Guaranteed private sectors pensions largely disappeared decades ago. The median balance in retirement accounts was just $2,500 in 2014, and 40 million households have no retirement savings at all.

There has also been fast and steady increase in the number of employees of large businesses that are enrolled in high deductible health plan. Since 2006, this number has increased from 4% to 20% in spite of the recovery in the economy. The predicted mass “dumping” of employer-sponsored health insurance in the wake of the passage of federal health reform has not happened yet with some limited exceptions. And the Affordable Care Act does provide a safety net for those workers who either lost their jobs or do not have an offer of health insurance through their employers. But the total amount of financial risk for people with employer sponsored insurance continues to climb.

Another component of the ACA is likely to accelerate this trend. This is the so-called “Cadillac Tax,” which levies a 40% rate starting in 2018 on health benefits over a certain dollar amount. Since that amount grows more slowly than projected health spending, many employers with only reasonably generous benefits are expected to have skyrocketing tax bills unless they reduce their health plan contributions significantly. Although there is bipartisan support for repealing this portion of the ACA, for budgetary reasons full repeal is unlikely. Even if it did come to pass, the trend in which employees have significantly more financial responsibility for their healthcare will continue.

Solutions for All Workers

Two primary ways in which the 1099 workforce remains different than the W-2 workforce is in the areas of access to workers’ compensation and unemployment insurance. However, it is not clear that these systems currently function well for workers, their employers, or the nation. Workers’ compensation provides a large and unequal burden on businesses and is plagued by — and arguably contributes through its design — to the nationwide epidemic of opiate abuse. Unemployment insurance programs are chronically underfunded creating growing fiscal liabilities for states. As of July 2015 the California Unemployment Insurance Trust Fund was $5.6 billion in the hole.

The solution to this problem is not simply dumping 1099 workers into these broken systems but rather designing systems that work for workers of all legal classifications. The Affordable Care Act is a good example of a policy solution that benefits all, though more reforms are needed to control healthcare costs for employers and their workers and to curtail unintended consequences.