This paper studies an insurance system for independent workers, characterized
by multiple sources of incomes and ability to avoid taxation. Optimal dynamic
contracts engineered by a public agency must satisfy incentive-compatibility con-
straints for workers to participate and to declare their entire income. A risk-averse
worker has incentives to pay taxes today to be eligible for benets in the future.
The principal can thus tax workers and improve their lifetime utility simultaneously.
The optimal contract takes the form of an individual portable account. This pa-
per is intended to policy makers, as it proposes foundations for an implementable
mechanism device.