A Bipartisan Compromise on Transitional Health Coverage
Jeff Lemieux
revised 4/28/2003

A simple plan to cover 3.5 million unemployed workers.

This year’s Congressional budget resolution contains a reserve fund of $50 billion over the next 10 years to expand health insurance coverage.  The best hope for a bipartisan compromise on the use of those funds is transitional health coverage, helping workers who have lost their jobs retain their health benefits.

In 2002, Congress passed the Trade Adjustment Assistance (TAA) Act, which created a 65 percent tax credit for a small group of workers who lost their jobs due to a trade action, and another small group whose retiree health benefits were lost when their company went bankrupt.  All told, about 260,000 workers qualify nationwide.

Under the TAA specifications, eligible unemployed workers can use the 65 percent credits for COBRA continuing coverage, state-based purchasing pools or other options arranged by states, or individually based coverage if the worker had individual coverage prior to losing his or her job.

This year, a bipartisan group of legislators and health care advocates is discussing an expansion of the TAA tax credits to all 3.5 million workers receiving unemployment benefits.  It is very important that centrists help both parties steer clear of smaller-scale disputes that could derail consensus and prevent action.

The big prize is the TAA model itself:  public funding for private coverage obtained mostly through employers or with the supervision and assistance of states.  If the budget permits, the TAA model should be expanded gradually to cover millions of uninsured Americans.

Here are the must questions that should be answered as Congress takes the next step:

1.What is the best way to ensure that people eligible for the credits actually have a place to use them?  Some unemployed workers are not eligible for COBRA because their business had fewer than 25 employers (and was therefore not required to provide COBRA coverage) or went bankrupt.  Although many states are working very hard to provide state-endorsed coverage options for TAA eligible people, some are not.  Because only a relatively small number of people are currently eligible, several hard-pressed states have not made coverage a priority.

Because some states haven’t created purchasing pools or other options, some House Republicans are pushing to allow people to use the credits for individual coverage even if they didn’t have such coverage when they were working.  Unions are opposed, because they believe that would further reduce the likelyhood states will create new purchasing options.

The logical solution is a combination of policies.  First, by expanding eligibility to all 3.5 million workers on unemployment, states will have a much stronger incentive to act quickly to create purchasing options according to the TAA specifications.  Second, the only people who should be allowed to "opt out" of the TAA-specified coverage are those with no other place to use their credits.  Third, opting out of the TAA-specified coverage could be allowed for only a year or two, until all states have both the reason and the time to create new purchasing options for their residents.

2. What is the best way to help get unemployed workers back to work without risking the loss of their transitional health coverage?  Congress should allow some re-employed workers to keep their tax credits as they return to work.  In particular,Congress should allow re-employed workers with low wages, those without health benefits at the new job, or those who took a large pay cut to keep all or part of their 65 percent credits for a time.  That would ensure there was no disincentive to take a new job.  In some cases, it would be wise to allow low-income workers to continue to recieve the credits even if they have health benefits at the new job -- a smaller credit (perhaps 30 percent) could be used to help them pay the employee share of the premium.

The scope of eligibility for "return-to-work" health credits and length of time the credits should beextended to help re-employed workers get back on their feet could be decided based on cost considerations.  But allowing certain re-employed workers to keep their credits even when they return to work would be an economically appropriate addition to the transitional tax credit system.

Gradually expanding the TAA model for health coveragewould lead to a more general system of tax credits for low-income workers, in cooperation with their employers.  It would spark improvements in state purchasing groups and pools, so that affordable health coverage is available to all.  Tax credits available through the workplace and state-based purchasing systems are two components of an ambitious centrist push toward universal health coverage.

Links:
Progressive Policy InstituteTransitional Coverage For All Unemployed Workers by Jeff Lemieux (April 3, 2003 || www.ppionline.org)

Heritage Foundation State Opportunities to Provide Affordable Coverage Under the Trade Law by Nina Owcharenko and Edmund Haislmaier (February 25, 2003 || www.heritage.org)

Economic and Social Research Institute Health Insurance for Laid-Off Workers: A Time for Action by Lynn Etheridge and Stan Dorn (February 2003 || www.esresearch.org)