From Transitional To Universal Health Coverage 
By Jeff Lemieux
9/24/2003

A step-by-step approach, that builds from “transitional” health insurance for unemployed workers toward a more general system of tax credits and purchasing groups that would substantially reduce the number of Americans without health insurance.

 

These are difficult times for advocates of universal health coverage.  Congress is preoccupied with drug benefits for seniors.  The nation’s attention is on foreign affairs.  State budgets are in crisis.  The federal budget has plunged into deep deficits.

 

However, there are reasons for hope.  First, ideological differences have narrowed.  Republicans and Democrats in Congress laid the groundwork for future political compromises on health coverage with the successful enactment of the Trade Adjustment Assistance (TAA) Act of 2002.  The TAA bill created the Health Coverage Tax Credit (HCTC), which is a model for bipartisan progress on health coverage:  public funding for private coverage obtained through employers or with the supervision and assistance of states. 

Second, both President Bush and most of the Democratic presidential hopefuls are in favor of refundable tax credits for health coverage like the HCTC.

Third, Congress allocated $50 billion over 10 years for health coverage in this year’s Budget Resolution.  That is not nearly enough to achieve universal coverage.  But it is enough to shrink the number of uninsured by several million.  It would build momentum for further progress.

 

Clearly, stressed federal and state budgets do not have room for large, broad based programs designed to achieve universal coverage in one “big bang.”  However, we can make significant progress toward a coherent vision for universal coverage by gradually expanding the current programs for transitional coverage in a series of logical, coherent steps.

 

To start, we should ensure that the TAA health tax credit is successfully implemented and is extended to all workers receiving unemployment benefits.  Then, we should allow the tax credit to “follow” workers to their new jobs, especially if their new employers didn’t offer health benefits, so that workers could accept new job offers without jeopardizing their health coverage.  The next step would be to allow at least some part of the tax credits for health insurance to follow low-wage workers indefinitely, regardless of whether or not their new jobs offered health coverage.  Finally, we should expand eligibility for the tax credits to all low-wage workers, not just those who were previously unemployed.

This step-by-step approach would lead toward a more general system of tax credits for low- and moderate-income workers, in cooperation with their employers, as the budget permits.  It would spark improvements in state purchasing groups and pools, so that affordable health coverage is widely available. 

 

Federal tax credits made available via the workplace and through state-based purchasing systems are key to an ambitious push toward universal health coverage that could be enacted with bipartisan support.

 

The Importance of a Consensus Vision.  In the early 1990s, the grand competing visions for universal coverage -- state single-payer systems, Medicare for all, private market systems -- led to a large-scale clash of ideologies, which led, in turn, to legislative failure. 

Health reformers of the 1990s failed to do two things:  (1) create a consensus vision of how the health coverage should be expanded, and (2) develop a practical, step-by-step plan for progress toward the consensus outcome.

 

In any realistic plan, the responsibilities of the federal government, states, employers, and individuals must be clear and workable. 

 

At this point, the closest thing to a consensus vision and allocation of responsibilities is:

 

Federal responsibility:  The federal government would establish tax credits for health coverage that could be used either for employer-based coverage, state-based insurance pools or systems, or individually purchased coverage. 

 

State responsibility:  States would be responsible for ensuring that all residents had reasonable choices of health coverage, and for maintaining the safety net programs. 

 

Employer responsibility:  To the extent possible, the tax credits would be administered via employers.  Even employers that didn’t offer coverage or contribute to the premium would provide employees with state-arranged insurance options, handle enrollment, and advance the federal tax credits directly to employees on their paychecks to help them purchase coverage. 

Individual responsibility:  Once the tax credits and state purchasing systems were in place, all Americans should be required to obtain health insurance in order to qualify for the personal tax exemption or other tax breaks.

 

Fortunately, politicians on both sides of the aisle are coalescing around many of these ideas.  Democrats and Republicans in Congress now support the idea that tax credits should be usable either for employer-based coverage or individual coverage.  The TAA bill laid out a plan for state-based insurance pools or purchasing systems that garnered bipartisan support. 

Funding Universal Coverage in Stages.  The main problem with this developing consensus for universal coverage is money.  To forge bipartisan compromises, health tax credit proposals have to be fair to people regardless of which type of coverage they have:  employer based coverage or individual coverage.  Fairness, or horizontal equity, is important -- otherwise a health subsidy plan could favor one market over the other, which could be very disruptive and problematic.  Poorly designed tax credit proposals could actually punish people who already have health coverage, the very people who have made sacrifices to obtain that coverage.

 

But fairness is expensive, and right now there is no serious political momentum in Congress to fund large-scale, fair tax credits for health coverage.

Although the federal government doesn’t seem likely to foot the full bill for universal health coverage in the coming years, the HCTC demonstrates that Washington can agree on how to subsidize transitional health coverage.

 

The HCTC is a 65 percent refundable tax credit for COBRA continuing coverage or certain other types of health coverage.  However, eligibility is restricted to workers who lost their jobs due to a trade action, and to certain retirees whose pension plans have been taken over by the government.

 

The HCTC is more than just a tax credit.  It is a system of health subsidies and purchasing arrangements that includes federal tax credits and state insurance pools, and has a measure of employer participation.

 

With the HCTC as a starting point, we should enact a serious of follow-up steps that would gradually lead toward universal coverage, as the funds become available and a political consensus solidifies.

 

Step 1 is to successfully implement the new law.  Because some states have few unemployed workers eligible for trade assistance and the HCTC, it will be hard in some areas to get state governments interested in arranging the full scope of options the law provides.  Without state-provided purchasing options, fewer eligible workers will be able to take advantage of the tax credit.  Although COBRA is likely to be a popular option, the law specifically denotes state high-risk pools and state employee insurance plans as qualified plans as well.

 

Step 2 in the path from transitional to universal coverage is to expand the 65 percent tax credit to all unemployed workers, not just those displaced by trade.  Congress expects roughly 250,000 workers to qualify under the trade act; however, there are about 3.7 million workers receiving unemployment benefits.  Extending the HCTC to all unemployed workers would cost about $34 billion over 10 years, well within this year’s budget for that purpose.  It would also prod states to do their part.

 

Step 3 would be to allow the 65 percent credit to “follow” people to a new job, especially if their new employer didn’t offer coverage or would otherwise impose a waiting period before the coverage started.  Of course, their unemployment benefits would end, but under this step people could use the HCTC for a longer period of time.  This would give formerly unemployed workers needed assistance as they got back on their feet, and it would give them an incentive to look for new jobs without fear of immediately losing their health subsidy.

 

Step 4 is to allow the tax credit to follow all low-wage workers indefinitely.  Under this step the tax credit would be scaled based on wage -- maybe continuing at 65 percent for workers making the minimum wage, with a sliding scale reduction for higher wages.  The credit could be used to help workers pay for their share of health insurance premiums if their employer offered coverage.

 

Of course steps 3 and 4 raise logical questions:  As long as the government is providing tax credits to low-wage workers who were formerly on unemployment benefits, wouldn’t it be fair to just extend the credits to all low-wage workers?  And as long as employers and states have worked out a system for the formerly unemployed with low wages, wouldn’t it be pretty easy to provide the same service to all low-wage employees? 

 

So if these steps were followed, they would logically lead to a fifth step:

Step 5 is to expand the HCTC system to all workers with low-incomes, regardless of whether they had been unemployed.  Choices would be provided by states and employers, with states and employers collaborating to deliver the federal tax credits on a timely basis and in an easy-to-use manner.

 

The system for transitional coverage would remain, organized primarily through the unemployment compensation offices.  But the follow-up coverage and tax credits would gradually become a general system that included federal, state, employer, and individual responsibilities.

 

Ultimately, Congress may wish to add a sixth step, which would involve performance-based grants to states designed to fill in any remaining cracks in the coverage system.  For example, some poor workers with incomes too high to qualify for public programs like Medicaid may nevertheless be unable to afford to coverage, even after the 65 percent credit.  State programs could target those people for added help.

 

 

Links:

Internal Revenue Service Health Care Tax Credit (HCTC) Overview

Centrist Policy Network Transitional Coverage Resource Page (contains links to proposed legislative language and revenue estimate from the Joint Committee on Taxation)

 

Centrists.Org A Bipartisan Compromise on Transitional Health Coverage (revised 4/28/2003)

 

Progressive Policy Institute A Progressive Path Toward Universal Health Coverage (December 2000)

The Breaux Plan:  A Radically Centrist Approach to a New Health Care System (January 23, 2003)

Lynn Etheredge and Stan Dorn, Economic and Social Research Institute

Health Insurance for Laid-Off Workers, A Time for Action (February 2003)

Kaiser Family Foundation/Health Research and Education Trust Employer Health Benefit 2003 Survey (Chart Pack) (This is an excellent source of data on trends in premiums, enrollment, and insurance type.)

 

 

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