A new California law that reclassifies some independent contractors as employees, requiring they be offered a range of benefits and worker protections, will likely expand health insurance coverage in the state, health policy experts say.

But it might end up harming some workers.

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

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

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

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

California Gov. Gavin Newsom has indicated a willingness to negotiate changes and exemptions with those companies and others.

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

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

Some independent contractors prefer the flexibility that comes with setting their own hours, but others are eagerly eyeing health coverage.

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 be reclassified as an Uber employee in 2020, primarily to gain access to health insurance.

"The only medical care I can really afford right now is to use an online doctor for my blood pressure medicine," said Gregg, who typically logs 50 hours or more a week driving for Uber in the Bay Area.

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

California's new "gig economy" law requires employers to treat independent contractors as regular employees if the work they perform is central to the core mission of the company and they operate under the company's direction.

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

Jacobs said other states will closely watch what happens in California, given that some tech companies hire large numbers of independent contractors.

New Jersey, Massachusetts and Connecticut have similar labor laws on the books. Lawmakers in Oregon and Washington state are eyeing legislation akin to California's.

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

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

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

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

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

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

A small firm with a skilled and relatively high-wage workforce might choose to absorb the cost of expanding coverage to reclassified workers, Young said, because those workers might not qualify for subsidies to buy health insurance on their own through Covered California, the state's ACA marketplace. Offering insurance is also a retention tool.

Other small companies, however, could choose to drop coverage altogether rather than pay the tab for newly reclassified workers.

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

Companies of all sizes can wait a year before offering new employees coverage, to establish what their average weekly hours are. That buys firms with 50 or more employees time to decide whether the reclassified workers qualify for health benefits under the ACA.

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

Vanessa Bain, a resident of Menlo Park, Calif., who works full time as a contract worker for Instacart — a same-day delivery service for groceries — worries about what her employer will do.

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

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

This KHN story first published on California Healthline, a service of the California Health Care Foundation.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation which is not affiliated with Kaiser Permanente.

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