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About Shift Health Advisory, LLC How to Affordably Insure the Gig Economy in a Covid-19 Recession Given what’s at stake, now is the time to determine - and act on - private market and public policy solutions to strengthen America’s safety net. Independent workers may surpass 50% of the American workforce before the end of the current recession. Independent workers already face substantially higher uninsured rates as compared to traditional employees due to: • high cost of healthcare in the US; • self-employment tax penalties vs employer-based insurance; • adverse selection; and • lack of a competitive market for health insurance for independent workers. The recession will result in significant increases in the number of Americans without insurance for several years, even with expansion of Medicaid. Health systems were already in a precarious financial position as well. Pre-COVID, patient payments accounted for 30 percent of healthcare revenue. A significant increase in America’s uninsured and under-insured means health systems face a broken revenue model. A number of established health insurers are focusing on ACA-compliant “micro network” products to increase affordability while meeting buyer needs, as well as growing their highly profitable supplemental insurance membership. Innovative, non-ACA-compliant insurance models tailored to serve independent workers also are emerging: self-service, mass personalization of benefit designs, digital-first coverage, new forms of price transparency, and AI-based care. However, systemic barriers to a robust individual health insurance market, combined with the financial hardships and uncertainty faced by individuals and families in this segment during a prolonged recession, means federal and state governments will need to act. There are several measures that can support a more innovative, competitive, affordable health insurance market for independent workers: • The newly-enacted Individual Contribution HRAs (ICHRA) could be modified to enable gig platforms and other employers to contribute to independent contractors’ health insurance. • Health insurance tax breaks currently available only to employers could be extended to independent workers. • Expanding the incentives for and regulation of non-ACA-compliant insurance could spur competition based on value. These solutions should be considered as part of upcoming debate at federal and state levels to reduce burdens on Medicaid budgets, better manage the volume of uninsured and underinsured patient care health systems must navigate, and provide a safety net for so many of America’s essential workers during a prolonged healthcare crisis. 1 It’s hard to predict how bad and how long the “covid recession” will be. The U.S. was already headed into recession well before COVID: a Sept 2019 CNBC article flagged 10 “major recession signals flashing red” - including inverted yield curve, manufacturing growth and GDP growth. Gig economy workers are a key variable in the upcoming U.S. economic recovery. More Americans than ever have been joining what we’ll call the “gig economy”: a scrappy mix of the self-employed, solo entrepreneurs, freelancers and contract workers. Fifty-seven million Americans freelanced in 2019, or 28 percent of the workforce, according to a recent study by the Freelancers Union. Among millennials, that number rises to 53 percent. Over 90 percent of net employment growth in the U.S. between 2005 and 2015 fell in the alternative work category. Can hospitals and health systems survive the financial exposure of a post-COVID gig economy - over 50% of American workers - with high uninsured rates? Health systems, which were already in a precarious financial position, have seen a 40-60% reduction in revenue coupled with increased costs associated with COVID. Numerous health systems have already furloughed workers, closed critical facilities in some high need areas, and more. Virtual medicine (called Telemedicine... but it really needs to be rebranded) reimbursed at the same rate as in person care is helping many healthcare provider groups. Notably, patients are loving it! Policy changes will be critical at both state and federal level, but we’ll hopefully see long-overdue changes to care delivery post-COVID. Pre-COVID, patient payments accounted for 30 percent of health system revenue. That 30% of health system revenue has been in the headlines due to surprise bills, hospitals suing patients, and healthcare costs as the leading cause of personal bankruptcy in the US. With unemployment claims skyrocketing, the percent of Americans that are uninsured and underinsured will also grow. This will increase the portion of health system revenue attributable to patient payments. Health systems face a broken revenue model. Why are so many more independent workers uninsured as compared to the national average? Per Economic Policy Institute, roughly 25% of independent contractors had no health insurance in 2017, in the midst of a strong US economy, as compared to the national average of 10% uninsured. The CEO of Catch, a venture-backed startup providing benefits to independent workers, told TechCrunch what keeps her up at night: “The safety net is not built for individuals. It’s built to be distributed through HR departments and employers. We are very worried that the products we offer aren’t on equal footing with group/company products.” For example, there’s a $6,000/year IRA contribution limit for individuals while the corporate equivalent 401k limit is $19,000. There are 4 key reasons so many more independent workers are uninsured vs the US overall: 1. Affordability: Gig workers have lower annual incomes than employees, on average. Healthcare is very expensive in the U.S. as compared to every other developed country, and thus health insurance is also very expensive. 2. U.S. Tax Code: As the CEO of Catch alluded, for even the wealthiest solopreneurs, U.S. tax code increases costs substantially as compared to employers. Employer-paid premiums for health insurance are exempt from federal income and payroll taxes while self-paid premiums are not. 3. Adverse selection: Centers for Medicare & Medicaid Service (CMS) estimate individual market enrollment declined 10 percent between 2016 -2017 from adverse selection. The more expensive insurance is, the more 2 likely healthier people are to go without coverage (or find alternatives). This causes further price increases (and the cycle continues). Repeal of the penalty associated with the individual mandate exacerbates the challenge. 4. Lack of access / lack of a competitive market: on average, there are 4.5 individual market insurers on ACA exchanges per state - 25% of counties have just one carrier - as compared to over 55 Medicare Advantage plans per state. Notably, insurer participation on ACA exchanges increased in 2019 and 2020, following 3 years of decline, with regional and local carriers driving this increase. Why is the Medicare Advantage market so robust, while the Individual health insurance market is not? There are, on average, 55 Medicare Advantage plans vs 4.5 individual market insurers on ACA exchanges per state. This is in part because the Medicare Advantage market is larger than the ACA-compliant market both in terms of number of people as well as premiums per person. As Chart 1 illustrates, though, consumers view the individual insurance market differently. The non-ACA compliant health coverage market is robust. Premiums are often more affordable, and benefits are much more diverse, featuring a range of consumer-friendly innovations. Yet the non-ACA compliant market also contains a range of predatory practices, and destabilizes the ACA individual market. More on that below. Chart 1: Estimated Market Size for Medicare Advantage versus Individual Insurance What are consumers purchasing for healthcare coverage? ACA coverage, and the innovations the ACA markets support, is not adequately meeting the needs of Americans in the individual market. This is evidenced not just by the high uninsured rate, but also by the robust market of highly profitable, less-regulated alternate insurance products serving independent workers. As the US looks to very rapidly provide affordable health insurance to America’s growing gig economy (including solopreneurs, independent contractors and beyond) - we need to tap into this ecosystem, encouraging innovation while also ensuring consumers are protected. 3 Table 1: Assessment of Private Market Individual Healthcare Coverage Options Individual Description Benefits Concerns Healthcare Coverage Type 1. Comprehensive Available on government-created Access to subsidies Extra paperwork/ hurdles (but they Major Medical - marketplaces (federal and state) Clarity of what’s covered are needed to assess qualification “On-Exchange” ACA-compliant plans cover essential for subsidies) ACA compliant health benefits, pediatric dental, and adhere to ACA consumer protections 2.Comprehensive Sold directly by private insurers and Avoid paperwork of Marketplace No access to subsidies Major Medical - brokers (outside of gov’t "Off Exchange ACA-Compliant" “Off-Exchange” marketplaces) creates extra complexity and ACA compliant ACA-compliant (see On Exchange) confusion for consumers and health plans 3. Catastrophic - “On- For those below 30 years old or with Lower premium costs No access to subsidies Exchange” ACA hardship exemptions Includes 3 PCP visits Not HSA-qualified compliant Covers ACA essential health benefits Hardship paperwork is complex, takes Adheres to ACA consumer protections time to approve 4.MEWAs
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