Gig Economy California's new gigeconomy law requires employers to treat independent contractors asregular employees if the work they perform is central to the coremission of the company. (Photo: Shutterstock)

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A new California law that reclassifies someindependent contractors as employees, requiring they be offered arange of benefits and worker protections, will likely expand healthinsurance coverage in the state, health policy experts say.

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But it might end up harming some workers.

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That's in part because the law, which takes effect Jan. 1, couldcut two ways. While inducing many employers to extend healthinsurance to newly reclassified employees, it might prompt othersto shift some workers from full-time to part-time status to avoidoffering them health coverage, or — in the case of some small firms— to drop such benefits altogether.

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Related: Uber's top lawyer vows fight new California gigrule

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Some companies might trim their workforce to limit costincreases. Benefits typically account for about 30percent of total employee compensation costs, andhealth insurance is the largest component of that.

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"I think we will see more people classified as employees overtime," said Ken Jacobs, chair of the Center for Labor Research atthe University of California-Berkeley. "And that is very likely toexpand the number who are offered and take coverage. But thesituation is definitely fluid."

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Adding to the fluidity: Some large employers are contesting thenew law. Uber, the ride-sharing app company, has said the law does not apply to its drivers and indicated it isprepared to defend its position in court. The company has joinedcompetitor Lyft in broaching the idea of a 2020 ballot initiative to challenge the law.

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California Gov. Gavin Newsom has indicated a willingness tonegotiate changes and exemptions with those companies andothers.

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Uber did not respond to requests for comment, and Lyft declinedto comment.

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In addition to shared-ride drivers, the law affects constructionworkers, custodians and truck drivers, among others.

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Some independent contractors prefer the flexibility that comeswith setting their own hours, but others are eagerly eyeing healthcoverage.

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Steve Gregg, a resident of Antioch, Calif., is among them.Gregg, 51, is uninsured and makes too much to qualify for Medi-Cal,the state's version of the Medicaid program. He hopes to bereclassified as an Uber employee in 2020, primarily to gain accessto health insurance.

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"The only medical care I can really afford right now is to usean online doctor for my blood pressure medicine," said Gregg, whotypically logs 50 hours or more a week driving for Uber in the BayArea.

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Under the Affordable Care Act, companies with at least 50full-time employees must pay a penalty if they don't offer healthinsurance to those who work 30 hours or more a week.

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California's new "gig economy" law requires employers to treatindependent contractors as regular employees if the work theyperform is central to the core mission of the company and theyoperate under the company's direction.

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Several kinds of workers are exempt from the law's provisions,however, including insurance and real estate agents, investmentadvisers, doctors and nurses, direct sales workers and commercialfishermen.

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Jacobs said other states will closely watch what happens inCalifornia, given that some tech companies hire large numbers ofindependent contractors.

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New Jersey, Massachusetts and Connecticut have similar laborlaws on the books. Lawmakers in Oregon and Washington state areeyeing legislation akin to California's.

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Independent contractors in the Golden State are nearly twice aslikely to be uninsured as regular employees, according to an analysis by UC-Berkeley's Center for Labor Research, knownas the Labor Center. From 2014 to 2016, just under 70% of workersclassified as employees had employer-sponsored health insurance,compared with 32% of independent contractors, the study shows.

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An estimated 1.6 million of the state's 19.4 million workers arefull-time independent contractors, according to another analysis bythe Labor Center. It is unclear precisely how many contractors are"misclassified," but sponsors of the new law, led by AssemblywomanLorena Gonzalez (D-San Diego), put the number at around 1million.

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Whatever the exact number, employers who rely on contractworkers will need to make complex health insurance decisions.

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A company whose contract workers average 35 to 40 hours a week,for example, could reclassify them as employees for the purpose ofcomplying with the new law but try to limit their weekly hours tofewer than 29, thus avoiding the ACA coverage requirement, saidDylan Roby, an associate professor of health policy and managementat the University of Maryland and an adjunct associate professor atUCLA.

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A large proportion of small companies that are not required bythe ACA to cover their employees do so anyway, and the ones thathire independent contractors will also face hard choices.

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"If they have to expand that to reclassified employees, the costcould be substantial," said Christen Linke Young, a healthinsurance researcher at the Brookings Institution in Washington,D.C.

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A small firm with a skilled and relatively high-wage workforcemight choose to absorb the cost of expanding coverage toreclassified workers, Young said, because those workers might notqualify for subsidies to buy health insurance on their own throughCovered California, the state's ACA marketplace. Offering insuranceis also a retention tool.

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Other small companies, however, could choose to drop coveragealtogether rather than pay the tab for newly reclassifiedworkers.

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And some might be able to place the new employees in a separatecategory and offer them no health benefits, or less generous onesthan the existing employees get. But under federal law, an employercan do that only if the new employees are doing a different kind ofwork than the current ones, Young said.

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Companies of all sizes can wait a year before offering newemployees coverage, to establish what their average weekly hoursare. That buys firms with 50 or more employees time to decidewhether the reclassified workers qualify for health benefits underthe ACA.

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The uncertainty about how the new law will play out is sowingconfusion among many independent contractors.

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Vanessa Bain, a resident of Menlo Park, Calif., who works fulltime as a contract worker for Instacart — a same-day deliveryservice for groceries — worries about what her employer willdo.

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Bain and her family are enrolled in Medi-Cal, California'sversion of the Medicaid program for people with low incomes. Butshe would rather get insurance through Instacart.

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"What will they offer us?" Bain, 33, wonders. "If the premiumsare too high or the coverage crappy, we may be better off buying iton our own through Covered California. We'll have to see."

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This KHN story first publishedon California Healthline, aservice of the California HealthCare Foundation.

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Kaiser HealthNews (KHN) is a national health policy news service. It is aneditorially independent program of the Henry J. Kaiser Family Foundation whichis not affiliated with Kaiser Permanente.

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