Panel approves bill to create portable benefit accounts for independent contractors

House Bill 494, a proposal to let independent contractors receive benefits through voluntary portable accounts, was approved by the Insurance Subcommittee on Feb. 26 and will advance to the full Insurance Committee.

The bill, explained by Chairman Baum, would "allow independent contractors to have portable benefit accounts" that the worker could use for health insurance, income replacement insurance, life insurance, retirement benefits and other employment-related benefits. Baum said the accounts would be voluntary, flexible and portable so they would remain with a worker who changed customers or had multiple clients.

The bill targets workers commonly categorized as independent contractors — "gig workers, freelancers, consultants," Baum said, citing examples such as Uber and Lyft drivers and delivery workers. Contributions to the accounts could come from the entity that hires the contractor, from the contractor themselves, or from other individuals such as family members, Baum said. Third-party providers would manage the accounts.

Committee members asked about tax and regulatory implications. Representative Freeman asked, "How are these taxed?" Baum responded that tax implications differ between W-2 employees and 1099 independent contractors and noted that some tax advantages — such as the ability to deduct business expenses — are specific to independent contractors. Representative Jones asked whether the bill would undermine state independent-contractor definitions; Baum said "it will not" and that the intent is to preserve contractors' employment status. Representative Hakim asked about regulatory oversight and who would hold funds; Baum said the bill defines third-party administrators and contemplates banks, investment managers and technology providers operating under applicable federal law.

The committee approved an amendment (drafting code 3693) that remade the bill; the amendment passed and the committee then voted on the amended bill. The clerk reported a 6-0 vote in favor. The committee record shows the amendment was adopted and House Bill 494, as amended, "goes to insurance full." No individual roll-call votes were read aloud in the transcript; the clerk announced the tally as six ayes and zero nays.

The bill does not itself set federal limits for retirement or other tax-advantaged accounts; Baum noted that federal limits in the Internal Revenue Code would continue to apply. He also said the statute is written to avoid creating state liability for relationships between contractors and third-party administrators. The bill text and amendment drafting code were cited during the hearing but the transcript does not show the full statutory language or whether additional regulatory guidance is required.

House Bill 494 moves to the full Insurance Committee for further consideration.