Order Code RL31593
Report for Congress
Received through the CRS Web
Health Insurance for Displaced Workers
Updated January 24, 2003
Julie Stone, Hinda Ripps Chaikind, Jean Hearne
Domestic Social Policy Division
Heidi G. Yacker
Information Research Division
Congressional Research Service ˜
The Library of Congress
Health Insurance for Displaced Workers
Summary
The events of September 11, 2001, the economic aftermath and the relocation
of American-based firms abroad have been separating persons from employment and
reducing access to health insurance. In response, the 107th Congress considered a
wide array of provisions intended to stimulate the economy and promote job growth,
addressing such areas as trade practices, tax policy, labor, state fiscal relief and health
care. Part of this debate was about whether, and how, to continue (or restore) health
insurance for displaced workers and their families. As economic conditions leading
to job loss persist and the number of uninsured increases, discussion concerning
policy options for the uninsured will likely continue into the 108th Congress.
The proposals offered in the House and Senate in the 107th Congress reflected
concerns among some Members that existing law may not provide a sufficient safety
net for the unique economic situation the U.S. is currently facing. This concern is
likely due to three contributing factors: health insurance is costly; continuation
coverage for those who had employer-based coverage, also known as COBRA
coverage has limited reach; and coverage under programs designed to help lower
income individuals, such as Medicaid and the State Children’s Health Insurance
Program (SCHIP), are not available to all displaced workers.
The 107th Congress considered several approaches to expanding this safety net
for subsets of the population of displaced workers and their families. Among these
approaches were proposals that would have assisted persons with the purchase of
health insurance though tax credits for health insurance premiums, block grants to
states, subsidies for COBRA continuation coverage, as well as proposals that would
have provided states the option of temporarily expanding their Medicaid programs.
Although a variety of measures were proposed to assist displaced workers and their
families in maintaining or acquiring health insurance, they diverged on who would
be offered assistance, and what form of assistance should be provided.
On August 6, 2002, the President signed the Trade Act of 2002 (
P.L. 107-210),
a bill which contains, among other things, provisions aimed at assisting workers who
have lost jobs and are receiving Trade Adjustment Assistance (TAA) with the
purchase of health insurance. The law provides a refundable and advanceable tax
credit of up to 65% of a TAA recipient’s health insurance premiums and authorizes
grant programs intended to encourage states to establish or expand programs for the
uninsured. An expansion of this program may be considered by the 108th Congress
as a method for providing assistance to other groups of uninsured individuals.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Health Insurance Coverage for Unemployed Workers and Their Families . . . . . . 3
Current Experience and Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Title X of COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
HIPAA Group to Individual Portability Protections . . . . . . . . . . . . . . . 4
Tax Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Medicaid and SCHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Gaps in Current Law Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Cost of Health Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
COBRA’s Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Medicaid/SCHIP Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Policy Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Legislation in the 107th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Proposed Forms of Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Tax Credits for Health Insurance Premiums . . . . . . . . . . . . . . . . . . . . 11
Block Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Subsidies for COBRA Continuation Coverage . . . . . . . . . . . . . . . . . . 13
Temporary Medicaid Expansion Legislation . . . . . . . . . . . . . . . . . . . . 14
List of Figures
Figure 1. Insurance Status of Non-Elderly Unemployed Adults, 1999 . . . . . . . . 4
List of Tables
Table 1. Health Provisions in Major Economic Stimulus Legislation
in the 107th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Health Insurance for Displaced Workers
Introduction
Largely in response to the events of September 11 and the economic downturn
that followed, the House and Senate considered a number of approaches to assist
displaced workers with the cost of health insurance. Many of the proposals were in
bills that included a wide array of provisions intended to stimulate the economy,
addressing such areas as trade practices, tax policy, labor, state fiscal relief and health
care. Part of this debate was whether, and how, to continue (or restore) health
insurance for persons who lost their jobs as a result of the downturn in the economy,
the terrorist activities of last fall, or the relocation of American-based factories
abroad. Discussion concerning policy options for the uninsured will likely continue
into the 108th Congress, in part due to the U.S. Census Bureau’s report that the
number of uninsured increased by 1.4 million in 2001, totaling 41.2 million.1
The 107th Congress considered several bills that would provide health care
assistance to certain displaced workers and their families. The conference report
(H.Rept. 107-624) for
H.R. 3009 (the Trade Act of 2002) was passed by the House
(July 27, 2002) and the Senate (August 1, 2002), and signed by the President (
P.L.
107-210) on August 6, 2002. The law contains, among other things, authorization
of presidential trade promotion authority (TPA) and includes provisions aimed at
assisting workers, who have lost their jobs and are receiving Trade Adjustment
Assistance2 (TAA), with the purchase of health insurance. It provides for a
refundable and advanceable tax credit of up to 65% of a TAA recipient’s health
insurance premiums and will authorize funding for grant programs intended to
encourage states to establish or expand programs for the uninsured. Many analysts
expect that these provisions and the new programs they establish will provide a
model for Congress to evaluate future proposals to provide assistance to other
uninsured individuals.
Bills considered earlier in the 107th Congress that failed to pass both houses,
include
H.R. 622, passed by the House on February 14, 2002, and
H.R. 3529, passed
by the House on January 20, 2002. Both bills would have provided a refundable,
and, for certain individuals who had recently lost jobs and health care coverage, an
advanceable tax credit equal to 60% of the amount paid during the taxable year for
1 U.S. Census Bureau, September 30, 2002: Numbers of Americans With and Without
Health Insurance Rise. [http://www.census.gov/Press-Release/www/2002/cb02-127.html]
2 Trade Adjustment Assistance (TAA) for workers offers extended unemployment benefits
and job training to workers left jobless when imported goods have contributed importantly
to their job loss. For more information see CRS Report RS21078: Trade Adjustment
Assistance for Workers: Legislation in the107th Congress, by Paul J. Graney.
CRS-2
health insurance premiums. Under these proposals, individuals and their dependents
would be eligible for a period not to exceed 12 months. Both bills would have
provided a $4 billion increase to the National Emergency Grants program for
subsidies for the purchase of insurance, among other purposes, and just under $4.6
billion to states through direct payments from the Secretary of Treasury for health
care items and services. National Emergency Grants are currently administered by
the Department of Labor and are available to states or localities affected by major
economic dislocations. Unlike
H.R. 3529,
H.R. 622 also included a provision that
would have provided a total of $100 million in grants to states to either create high
risk pools or fund existing ones.3
H.R. 3090 was passed by the House on October 24, 2001. This bill would have
provided health care assistance for the unemployed by increasing Social Service
Block Grant funding by an additional $3 billion for FY2002. If enacted, states could
have used these funds for several purposes, including paying for health insurance for
certain unemployed individuals who are not eligible for other federal health insurance
programs.
In the Senate, a variety of approaches were considered. On November 9, 2001
the Senate Finance Committee considered the House-passed
H.R. 3090. The
committee passed it with an amendment in the nature of a substitute. The Finance
committee’s version of
H.R. 3090, The Economic Recovery and Assistance for
American Workers Act of 2001, would have provided direct payments from the
Department of Treasury to health plans to cover 75% of premiums on behalf of
unemployed workers purchasing health insurance through their former employers
under the continuation health benefits provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1986 (COBRA). The bill would also have allowed
states to use Medicaid funds to subsidize the cost of the remaining 25% of COBRA
continuation health benefits for certain low-income individuals unable to afford their
share of the premium. States electing this option would have received federal
matching dollars at the State Children’s Health Insurance Program (SCHIP) enhanced
match (described below). In addition, the bill would have provided states the option
of extending Medicaid coverage temporarily to those displaced workers who do not
qualify for COBRA continuation coverage.
3 In general, high risk pools provide state subsidized health coverage to individuals who
have been denied coverage through the private insurance market or charged premiums that
they cannot afford due to their health status. Under high-risk programs, states typically cap
premium rates at 125 to 200 percent of standard market rates. Most states use money from
taxes levied on health insurers in the state and/or by allocating general revenue or special
funds to subsidize the cost of care for these high-risk individuals (Achman, Lori and Chollet,
Deborah.
Insuring the Uninsurable: An Overview of State High-Risk Health Insurance
Pools. Mathematica Policy Research, Inc., August 2001). As of January 21, 2001, 29 states
have set up high-risk pools (or similar comprehensive state programs) designed to provide
insurance and risk-spreading for people who are medically uninsurable. (Comprehensive
Health Insurance for High-Risk Individuals: A State-By-State Analysis Includes Operating
Statistics, Model Bill, Current Premiums, Funding Mechanisms, State Contacts. Self-
Employed Country, Inc., National Association of State Comprehensive Health Insurance
Plans, Fourteenth Edition, 2000.)
CRS-3
On November 14, 2001, however, the Senate Finance Committee’s version of
H.R. 3090 failed to overcome two budget points of order. Finally, a proposal
considered, but not introduced, would have provided refundable tax credit to help
displaced workers pay up to 50% of the premiums for COBRA continuation health
coverage. The proposal also included a $5 billion increase for National Emergency
Grants to provide subsidies for the purchase of insurance, among other purposes.
This report discusses enacted legislation as well as other proposed bills to show
the scope of options considered by the 107th Congress. Many of these approaches
will likely be considered again by the 108th Congress as it deals with issues raised by
the legislation, including affordability, populations impacted, gaps in coverage and
state participation.
Health Insurance Coverage for Unemployed
Workers and Their Families
Current Experience and Law
Figure 1 summarizes the insurance status, including COBRA participation, of
non-elderly unemployed adults in 1999, the latest year for which such data are
available. About one-third (31%) of unemployed non-elderly adults retained private
health insurance coverage through their spouses’ employers, by purchasing policies
in the individual market for insurance, or through some combination of private and
public coverage in 1999 (28% private, not COBRA, plus 3% public and private).
The current law safety net for workers losing their jobs covered an additional 22%
of unemployed non-elderly adults. The safety net consists of COBRA continuation
coverage (6%) and public programs (16%), such as Medicaid, the State Children’s
Health Insurance Program (SCHIP) or other public programs. Among the
unemployed, however, the largest group (46%) did not have health insurance
coverage. Below is a description of the major options in current law that can be used
to cover unemployed displaced workers.
Title X of COBRA. Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1986 (COBRA, P.L. 99-272) requires employers who have 20
or more employees and who offer health insurance to continue to offer coverage for
their employees and their families under certain circumstances (termination or
reduction in hours of employment, death, divorce or legal separation, enrollment in
Medicare, or the end of a child’s dependency under a parent’s health plan).
Individuals have a maximum 104-day window in which to purchase COBRA
coverage.4 The coverage generally lasts 18 months, but may be extended for a longer
period depending on the nature of the event triggering coverage. Employers are not
4 Employers must notify the health plan administrator of the “COBRA qualifying event”
within 30 days. The plan administrator must notify the eligible individual within 14 days
of receiving the employer’s notice. The employee must choose whether or not to elect
COBRA coverage within the election period of 60 days, bringing the total number of days
to a maximum of 104.
CRS-4
required to pay for this coverage; instead, they may charge the beneficiary up to
102% of the premium (100% of the premium plus a 2% administrative fee).
Individuals who purchase COBRA continuation coverage are not eligible for as many
tax advantages as those who purchase health insurance through their employers
(described below). Purchasers of COBRA continuation coverage may deduct the
amount they pay on premiums, only if their total uncompensated medical expenses
exceed 7.5% of adjusted gross income.
Figure 1. Insurance Status of Non-Elderly
Unemployed Adults, 1999
HIPAA Group to Individual Portability Protections. The health
insurance reforms of the Health Insurance Portability and Accountability Act
(HIPAA) of 1996 (HIPAA, P.L. 104-191) ensure that qualified individuals who are
moving from one job to another or from employment to unemployment are not
denied health insurance in the group or individual market because they have a
preexisting medical condition (portability). HIPAA limits the amount of time a plan
can postpone providing coverage to participants and beneficiaries in group health
plans due to preexisting conditions and guarantees that qualified individuals and
employers who choose to purchase coverage are able to find a plan (guaranteed
offer). States have the choice of either enforcing the HIPAA individual market
guarantees, referred to as the “federal fallback,” or they may establish an “acceptable
alternative state mechanism.” Examples of potential alternative state mechanisms
include health insurance coverage pools or programs, mandatory group conversion
policies,5 guaranteed issue of one or more plans of individual health insurance
5 Some states require health insurance issuers to allow a person to “convert” to an individual
policy once he or she has lost group coverage. The individual maintains the policy generally
(continued...)
CRS-5
coverage, open enrollment by one or more health insurance issuers, or a combination
of such mechanisms. Many states have elected to provide group-to-individual
portability through high-risk pools, while others utilize a combination of high-risk
pools, existing state insurance reform laws, and/or other mechanisms.
Tax Advantages. Current law provides important tax advantages for
employer-sponsored health insurance. Employer contributions towards this insurance
are excluded from workers’ gross income in determining their income tax liability;
in addition, the contributions are not considered in determining either the employers’
or the workers’ share of employment taxes (i.e. social security, Medicare and
unemployment taxes). Workers may pay their share of the premiums on a pre-tax
basis if their employer has a premium conversion plan. Alternatively, workers can
deduct their share of the premiums as an itemized deduction to the extent the
premiums and other unreimbursed medical expenses exceed 7 ½ % of adjusted gross
income. Self-employed tax payers may deduct 70% of the cost of their health
insurance premiums as a deduction in determining adjusted gross income; this
“above-the-line” deduction is not limited to itemizers. The self-employed deduction
increases to 100% starting in 2003.
Medicaid and SCHIP. Medicaid, Title XIX of the Social Security Act, and
the State Children’s Health Insurance Program (SCHIP), Title XXI of the Social
Security Act, contribute to the health care safety net for uninsured children and for
other specified groups of people with low income. Most healthy adults, however, do
not qualify for Medicaid or SCHIP because enrollment is offered only to specific
groups of parents and disabled individuals. Medicaid and SCHIP are more likely to
be sources of coverage for the children of displaced workers.
Medicaid is a federal-state entitlement program providing medical assistance for
low-income individuals who are aged, blind, disabled, members of families with
dependent children, or who have one of a few specified conditions for which
Medicaid coverage is conferred. Those conditions include pregnancy, tuberculosis,
and breast or cervical cancer. SCHIP, also a federal-state program, builds upon
Medicaid coverage for low- and modest-income children. States can choose to use
SCHIP funding to cover certain children in families with income generally at or
below 200% of the federal poverty level, but above the Medicaid income cutoff. The
federal government shares in a state’s Medicaid costs by means of a statutory formula
designed to provide a higher federal matching rate, Federal Medical Assistance
Percentage (FMAP), to states with lower per capita income. Matching payments are
larger under SCHIP than they are under Medicaid and are called Enhanced Federal
Medical Assistance Percentage (Enhanced FMAP). The Medicaid FMAP for
FY2003 ranged from 50% to 77% while the SCHIP Enhanced FMAP ranged from
65% to 83.3%. Children whose health coverage is funded by SCHIP dollars can
receive their health benefits through their state’s Medicaid program, or states can
5 (...continued)
with the same issuer, but it becomes an individual policy. The benefits offered by the
conversion policy may not be the same as those under the group policy and the premiums
are often more expensive.
CRS-6
establish separate health care programs. Coverage for adults under SCHIP is
restricted to specific circumstances, either through subsidized employer-sponsored
family coverage or special demonstration waivers.
Gaps in Current Law Coverage
Provisions in the House and Senate bills reflected concerns among some
Members of the 107th Congress that existing law may not provide a sufficient safety
net for some displaced workers and their families. Concerns in the past have been
partly due to the following contributing factors: health insurance is costly; COBRA
has limited reach; and Medicaid and SCHIP are not available to all displaced
workers. As economic conditions leading to job loss persist and the number of
uninsured increases, concerns about the reach of the existing safety net may reemerge
in the 108th Congress.
The Cost of Health Insurance
For many, the cost of health insurance is burdensome. A recent survey of
employers found that in 2002 employer-based health insurance policies cost on
average $3,060 for single coverage. For family coverage, the average annual
premium was estimated to be $7,9546 For a family of four, earning twice the poverty
level ($36,200 in 2002), this is about 22% of their annual income although employers
often contribute to the cost. Often premiums are even higher for those purchasing
comparable benefits in the individual market.
For several consecutive years, health insurance costs have risen rapidly,
exceeding inflation, and large increases are projected to continue. For example,
employer-based health insurance premiums are estimated to have risen by 12.7%
between spring of 2001 and spring of 2002.7
COBRA’s Limitations
About 4.7 million individuals were estimated to be enrolled in employer-based
plans continued under COBRA’s provisions at any one time in 1999. This
represented only 6% of all unemployed workers. This low rate of COBRA coverage
reflects COBRA’s limited reach. Only certain employers are required to offer
continuation health benefits – those firms that have 20 or more employees
and that
offer a group health plan. Firms are only required under COBRA to offer continued
coverage to individuals who were enrolled in the plan at the time their job was lost
or their hours were reduced. A study released by the Kaiser Family Foundation
estimated that in 1999 only 57% of workers and their adult dependents would have
been eligible under COBRA’s provisions if they had become unemployed.8
6 The Kaiser/HRET Survey of Employer-Sponsored Health Benefits Estimates, 2001.
7 Weber, Joseph. America, This is Really Gonna Hurt.
Business Week, September 17, 2001.
8
COBRA Coverage for Low-Income Unemployed Workers. The Kaiser Commission on
(continued...)
CRS-7
Low-wage workers are less likely to have access to COBRA’s protections than
other workers. This is largely for two reasons. First low-income workers are less
likely to work for employers that offer coverage. An Urban Institute study estimates
that about 32% of low-income (individuals with incomes under 200% FPL) workers
and their adult dependents qualify for COBRA compared to 67% of high-income
(individuals with incomes over 300% FPL) workers.9 Second, when offered
coverage, low-wage workers are less able to afford their required premium
contributions. As described above, the beneficiary is responsible for up to 102% of
the premium. The Kaiser study estimated that among those who are newly
unemployed, fewer than 20% purchase it, and those with lower incomes are less
likely to purchase it than their wealthier counterparts.10
Medicaid/SCHIP Limitations
Under current law, Medicaid and SCHIP eligibility for non-disabled adults is
allowed only under very limited circumstances. Through demonstration waivers,
states can extend eligibility to non-traditional groups, such as childless adults. But
those waivers are held to a budget neutrality requirement that prohibits new program
spending. This means that states cannot expand coverage for some groups without
reducing spending in some other part of the program. In most states, this is a barrier
to large scale eligibility expansions, even in states that are prepared to devote
additional state funds to expansion groups. SCHIP has another option for extending
coverage to non-disabled adults who are parents of SCHIP eligible children. The
“family variance” allows states to use SCHIP funds for a premium (presumably for
employer-based coverage) for an entire family as long as the payment is not more
than the agency would have paid for the SCHIP-eligible children in the household
alone to be enrolled in traditional SCHIP coverage.
Policy Considerations
Although a variety of measures were proposed to assist displaced workers and
their families in maintaining health insurance coverage or in acquiring new coverage,
they diverged on who would be offered assistance, and what form of assistance
should be provided.
8 (...continued)
Medicaid and the Uninsured. Washington, D.C. October 2001. (Hereafter cited as COBRA
Coverage. The Kaiser Commission, 2001.)
9 Zuckerman, Stephen, Jennifer Haley, and Matthew Fragale.
Could Subsidizing COBRA
Health Insurance Coverage Help Most Low-Income Unemployed? Urban Institute,
Washington, DC, 2001.
10 COBRA Coverage. The Kaiser Commission, 2001.
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Legislation in the 107th Congress
While all of the proposals target displaced workers, each defined the group of
workers eligible for assistance differently.
Table 1 describes the major legislation
and populations they targeted.
Table 1. Health Provisions in Major
Economic Stimulus Legislation in the 107th Congress
Proposal and
Form of
status
assistance
Method
Target group
P.L. 107-210,
Tax
credit
Up to 65% of
health
Persons who are receiving
signed by the
insurance premiums will be
Trade Adjustment Assistance
President on
available as a refundable and
(TAA), who would be eligible
August 6, 2002
advanceable tax credit
to receive TAA but for the
payable to providers of
requirement to exhaust
qualified health insurance.
unemployment compensation,
who are eligible for alternative
TAA, or who are receiving a
pension under the Pension
Benefit Guaranty Corporation.
Grants to
Authorizes grants to states of
Available to states for fiscal
states
$510 million for 2002-2007.
y e a r s 2 0 0 2 - 2 0 0 7 f o r
enrollment assistance and for
fiscal years 2002-2004 for
health insurance and other
support services.
Grants to
Establishes a $100 million
Available to states for fiscal
states
grant program for Qualified
y e a r s 2 0 0 3 - 2 0 0 4 f o r
High Risk Pools.
establishing new qualified
high risk pools and operation
of existing pools. States with
established high risk pools can
receive a grant of up to 50%
of the losses incurred by the
state in connection with the
operation of its pool.
CRS-9
Proposal and
Form of
status
assistance
Method
Target group
H.R. 622 as
Tax
credit
Up to 60% of
health
Displaced workers who are
amended and
insurance premiums would
receiving Unemployment
passed by the
be available either as a
Compensation (UC) or are
House on
refundable tax credit or
certified by a state as eligible
February 14,
advanceable through direct
for UC benefits but are
2002
payments from Treasury to
beyond their benefit year or
health insurance plans.
h a v e e x h a u s t e d t h e i r
maximum benefit levels.
Qualifying plans would
i n c l u d e i n d i v i d u a l l y -
purchased plans as well as
employer-based plans (such as
COBRA continuation health
benefits) for displaced
workers responsible for more
than 50% of the premiums.
The credit would be available
for no more than 12 months.
Grants to
I n c r e a s e s N a t i o n a l
Distributed to states or
states
Emergency Grants by $3.9
localities affected by major
billion.
economic dislocations for
employment, training, and
health insurance assistance.
Grants to
Establishes Temporary State
Available for states through
states
Health Care Assistance
the end of 2002 to pay for
grants of just below $4.6
health care items and services
billion.
(not including Medicaid).
Grants to
Establishes $100 million in
Same as P.L. 107-210.
states
grants for Qualified High
Risk Pools.
H.R. 3529 as
Tax
credit
Up to 60% of
health
Same as H.R. 622.
passed by the
insurance premiums would
House on
be available either as a
January 20,
refundable tax credit or
2001
advanceable through direct
payments from Treasury to
health insurance plans.
Grants to
I n c r e a s e s N a t i o n a l
Same as H.R. 622.
states
Emergency Grants by $4
billion.
Grants to
Establishes Temporary State
Same as H.R. 622.
states
Health Care Assistance
grants of just below $4.6
billion.
CRS-10
Proposal and
Form of
status
assistance
Method
Target group
H.R. 3090
Grants to
Increases Social Services
Unemployed individuals (and
as passed by
states
Block Grant by $3 billion.
their families) who were
the House on
employed at some point
October 24,
during 2001, are seeking and
2001
available to work and who are
not eligible for any other
fed era l h e a l t h b enefit
program.
H.R. 3090 as
Premium
The Secretary of Treasury
Workers who lose their jobs at
reported by
assistance
would make payments for up
any time from September 11,
the Senate
for COBRA
to 75% of the premium
2001 through December 31,
Finance
continuation
directly to group health
2002, and who are eligible for
Committee on
health
plans, employers, and or state
and have elected COBRA
November 9,
benefits
unemployment insurance
continuation health benefits.
2001
offices.
The subsidies could last up to
12 months and would be paid
by the Department of the
Treasury directly to group
health plans, employers,
and/or state unemployment
insurance offices.
Medicaid
Provides states the option of
Low-income individuals
payment of
extending Medicaid to low-
whose family income does not
COBRA
income recipients of COBRA
exceed 200% of the federal
continuation
premium assistance to cover
poverty level and who are
health
remaining 25% of premium
receiving the proposed 75%
benefits
at an enhanced matching rate.
subsidy.
Temporary
Provides states the option of
Displaced workers who do not
Medicaid
extending Medicaid to
q u a l i f y f o r C O B R A
expansion
displaced workers who do
continuation coverage; are
not have access to COBRA
separated from employment at
continuation health benefits
any time from September 11,
and to certain noncitizens.
2001 through December 31,
States would be required to
2002; are uninsured; and
terminate enrollment for this
whose income, asset and
new group of beneficiaries
resource limitations do not
once they become insured
exceed standards established
through another program or
by the state.
under employer-sponsored
plans. States electing this
option would receive federal
matching dollars at the
SCHIP enhanced match.
Senate
Tax credit
Refundable credit that could
Individuals who purchase
Proposal Not
for payment
be claimed in advance of
COBRA coverage and file tax
Acted Upon
of COBRA
filing one’s tax return,
returns.
continuation
covering up to 50% of
health
COBRA premiums, not to
benefits
exceed $140 per month for
single coverage and $340 per
month for family coverage.
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Proposal and
Form of
status
assistance
Method
Target group
Grants to
I n c r e a s e s N a t i o n a l
Distributed to states or
states
Emergency Grants by $5
localities affected by major
billion.
economic dislocations, to be
used for employment, training,
a n d h e a l t h i n s u r a n c e
assistance.
During the 107th Congress, Members chose to consider the health insurance
needs of a very small group of uninsured individuals, namely those impacted by U.S.
trade policies and those receiving pensions through the Pension Benefit Guaranty
Corporation. The number of individuals without insurance, however, is a much
larger group. The different target groups in these bills reflect diverse opinions among
Members of Congress about which group of uninsured individuals represents the
highest priority for assistance. At the end of 2001, the leading bills under
consideration focused on those individuals impacted by the terrorist incidents of
September 11, 2001. As time passed, the target population changed to individuals
impacted by the economic recession. Still later, the leading bills’ target group
narrowed to extend benefits only to those recipients of Trade Adjustment Assistance.
Little information is available to assist with prioritizing among groups of uninsured
and determining the best form of assistance for the highest priority groups. It is
unknown exactly how many individuals lost health insurance as a result of the
terrorist incidents on September 11, 2001, the economic decline, and trade practices
that impact U.S. workers. At a national level, there has been an increase in the
number of persons experiencing unemployment. The unemployment rate rose to
5.7% in August 2002, among the highest levels since December 1996. Less is
known, however, about how many of those recently unemployed individuals are
uninsured. Further uncertainty exists about job losses that may yet occur as a result
of the general economic downturn, U.S. policies reducing trade barriers, or even
recent bankruptcies of several large corporations.
Proposed Forms of Assistance
Each of the options under consideration in the 107th Congress is described below
and some of their varying aspects are raised. Each would have provided assistance
for either the purchase of health insurance or the provision of health care, but the
approaches, as well as who would have been eligible, differ. The 108th Congress may
consider these options again as it considers methods of reducing the number of
uninsured individuals.
Tax Credits for Health Insurance Premiums. A number of bills,
including the recently passed Trade Act of 2002, contained health provisions that
would have provided tax credits for displaced workers. Although they differ in their
details, their approaches share some common advantages and disadvantages.
Subsidies through the traditional tax system may not provide individuals with
the money in time to pay health insurance premiums. Individuals file taxes annually
and make claims based on the prior calendar year. Under this system, individuals
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need to pay for health insurance premiums first and wait to receive the credit until the
next consecutive tax calendar year.
P.L. 107-210, the House-passed
H.R. 622 and
H.R. 3529 avoided this barrier by providing advanceable credits to eligible
individuals through direct payments from the Secretary of Treasury to health
insurance plans. Although advanceable payments could correct the timing problem
for those who are qualified to receive them, their effectiveness will be determined by
the speed in which the administrative processes are implemented to distribute them
and by the eligible individual’s ability to afford the remainder of the premium.
Under some of these proposals, only individuals who file federal tax returns would
be eligible for the tax credit. This might exclude some very low wage earners who
do not file tax returns.
Block Grants. Block grants were proposed in a number of bills and included
in
P.L. 107-210. Grants to states to fund high risk pools can assist states in designing
programs that provide health insurance coverage to persons who are high-risk and
often otherwise uninsurable in the state. Under
P.L. 107-210 and
H.R. 622, funds
can be used to either create high risk pools or fund existing ones. Under
P.L. 107-
210, funds will be directed toward pools in which the state restricts premiums
charged to no more than 150% of the premium for applicable standard risk rates and
that offers a choice of two or more coverage options. However, states will still be
able to determine how much to charge enrollees in out-of-pocket costs, what benefits
to include under the plans, the length of waiting periods for obtaining care for
preexisting conditions, within federal standards, and whom among the otherwise
uninsurable population they wanted to cover.
H.R. 3090, as passed by the House,
would have provided an additional $3 billion to the Social Services Block Grant
(SSBG) program to allow states to assist the recently unemployed with the cost of
health insurance.
Block grants offer predictability for both state and federal budgets, reducing the
chance that costs will escalate uncontrollably. For states, on the other hand, the
advantage predictability brings may be reduced if the funds are insufficient to cover
the target population. If $3 billion is divided by the average cost of a private
employer-based insurance plan (about $7,000 for a family policy in the group market
in 2001, and $2,600 for an individual policy), then an estimate of how many average
premiums could be paid with $3 billion can be calculated.11 This calculation would
suggest that just over 400,000 families or 1 million individuals could be covered with
full subsidies for one full year.12 If partial subsidies were provided, the number of
people that could be reached would increase.
Two advantages of SSBG grants are simplicity and flexibility. Under
H.R.
3090, funds would have been distributed to states through an established program
based on an established formula. The bill did not include specific requirements about
who would be eligible for assistance under the grant program nor how such
assistance would have been provided. Using SSBG grants, states would have the
ability to design and administer the subsidy program that best fits their needs.
11 The Kaiser/HRET Survey of Employer-Sponsored Health Benefits Estimates, 2001.
12 Such a program is likely to cover a mix of family and individual policies.
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On the other hand, under the block grant approach, states would be faced with
difficult issues, such as how to reach the target population, how to administer funds
quickly and efficiently, and what to do if the funds ran out without having covered
all or most of the target population. Distributing funds for displaced workers and
families through federal SSBG payments to states may create other inefficiencies as
well. Social service programs are not likely to have staff experienced in purchasing
health insurance on behalf of low-income people or administrations in place to do so.
H.R. 3090 would have prohibited states from using the funds to expand Medicaid or
SCHIP, programs with experienced staff and existing administrations. Second, it is
not clear that the current law formula used for distributing SSBG funds would be best
for distributing health insurance assistance to people impacted by the recent
recession. SSBG funds are distributed to states using a formula based on the
population of the state, which may not correlate to the states with the greatest need
created by the events of September 11, 2001 or another economic downturn.
National Emergency Grants, like SSBG, can be used to quickly and efficiently
move money to states.13 An advantage of using the National Emergency Grant
program is that funds can be targeted to areas that have been affected by major
economic dislocations rather than through an allocation formula to all states. This
could allow the Secretary the flexibility to target assistance. Health insurance
advocates, on the other hand, opposed this approach because proposals would have
allowed the authorization to pay for other employment and training assistance as well
as for health insurance. It is thus possible that only some of the funds would have
been used to pay for health coverage for dislocated workers.
Subsidies for COBRA Continuation Coverage. Subsidies, like the
Senate Finance Committee proposal, that pay all or part of premiums under
COBRA’s continuation health benefit provisions had several advantages. Individuals
who participate in these proposed subsidy programs would have been able to remain
in their current provider network and maintain continuous access to medical services.
Further, the proposed programs could have also reduced the number of uninsured.
Subsidies could have provided incentives to individuals and their families to
purchase COBRA continuation health coverage when they might not otherwise have
done so.
The proposed legislation also has disadvantages. It would have assisted only
those individuals who previously had insurance coverage (as described above).
Subsidizing COBRA continuation health coverage may be relatively expensive
because employees are guaranteed the same coverage as they had immediately before
the qualifying event. Subsidies for more limited benefits packages may be more cost-
effective both in terms of federal funding as well as for the enrollee who is required
to pay the unsubsidized portion of the premium. In addition, subsidizing employer-
based plans would result in larger subsidies for some individuals than for others since
some employer plans are more expensive than other employer plans. Finally,
13 National Emergency Grants were established by the Workforce Investment Act of 1998
and are administered by the Department of Labor. They are available to states or localities
affected by major economic dislocations.
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subsidies might result in government payments for people who would have purchased
insurance independently.
Although COBRA provides an established mechanism for continuing health
insurance, COBRA subsidies would have required the creation of a new
administrative system. For example, to implement the 75% subsidy, the Senate
Finance Committee proposed to make payments directly from the Department of
Treasury to group health plans, employers, and/or state unemployment insurance
offices. This activity is not currently conducted by any existing governmental
administrative entity. Under the proposal, state Medicaid programs would have had
the option to pay the remaining 25% of premiums for individuals in families with
income below 200% of FPL. To distribute these payments, state Medicaid offices
would have had to determine which individuals receive the 75% subsidy as well as
their income levels possibly requiring coordination between state Medicaid offices
and the Department of Treasury.
Temporary Medicaid Expansion Legislation. As a means-tested
program, Medicaid is able to provide certain low-income individuals with health
insurance coverage that they could not otherwise afford through the group or
individual markets. Furthermore, Medicaid has an established administration
designed to count applicants’ income and resources to determine wealth status. Thus,
the administrative burden of providing coverage to this new eligibility group would
have been reduced. On the other hand, Medicaid is sometimes perceived negatively
because of its association with welfare. This perception could deter some eligible
individuals and families from enrolling in Medicaid.
An additional consideration is that Medicaid financing is shared by federal and
state governments. Although the cost of this temporary eligibility expansion would
have been largely paid with federal dollars, the financial burden would have been
distributed across states and the federal government. The effectiveness of the
proposal, therefore, would have depended on state decisions to elect to cover this
new eligibility group, since they would not have been required to do so. Many state
budgets are already strained, with declining state revenue trends forcing many states
to initiate funding cuts for their Medicaid programs.14 The increase in unemployment
rates will likely result in an increasing number of persons who will be eligible for
Medicaid. States will therefore likely face a growth in enrollment, even without
electing to cover this proposed new group. It is thus not clear how many states would
have participated.
The Senate Finance Committee proposal also included a provision that would
have provided states with additional Medicaid funds to assist them in maintaining
their current eligibility standards. It would have allowed states whose FMAP
declined for 2002 to maintain their 2001 rates plus one percentage point. All other
states would have received their 2002 FMAP plus one percentage point. In addition,
those states experiencing higher than average unemployment rates over 3 consecutive
14 State Budgets Under Stress: How are States Planing to Reduce the Growth in the
Medicaid Costs.
Kaiser Commission on Medicaid and the Uninsured, July 30, 2002.
[http://www.kff.org/content/2002/20020730/statbudupdate73002.pdf]
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months (beginning on or after June 2001 and ending with the second month before
the beginning of the calendar quarter), would have received an additional 1%
percentage point increase in FMAP, raising their matching rate by a total of two
percentage points.15 The increased federal matching payments were intended to
offset state budget shortfalls and increase the likelihood that states will maintain
current eligibility levels. The Finance Committee proposal, as drafted, however, did
not guarantee that states maintain current eligibility standards.
15 A similar provision was included in S. 812, as passed by the Senate on July 31, 2002.
This provision would hold states with declining FY2003 FMAPs harmless, by allowing
them to maintain their 2002 FMAPs and, in addition, would provide all states with an
increase of 1.35 percentage points.