Report to Congressional Requesters

United States General Accounting Office

GAO 

October 2002 HEALTH INSURANCE 

States’ Protections 

and Programs Benefit 

Some Unemployed 

Individuals 

GAO-03-191 
The six states reviewed had in place a variety of protections, established 

prior to the economic downturn, to assist unemployed individuals in 

maintaining health insurance coverage: 

• State-mandated continuation coverage, which required small businesses 

to extend their group health coverage to former employees and their 

families who choose to pay for it. 

• Guaranteed conversion, which required insurers to allow eligible 

individuals to convert their group coverage to individual health 

insurance policies. 

• Guaranteed issue, which required insurers to offer coverage to those 

who did not have access to group coverage or public insurance. 

• High-risk pools, state-created associations that offered comprehensive 

health insurance benefits to individuals with acute or chronic health 

conditions. 

However, individuals generally bore the full cost of the premiums, which 

was usually higher than their premium cost under employer-sponsored 

plans. For individuals who relied on unemployment benefits as their 

principal income, premiums absorbed a significant share of the benefit.

State Protections that Facilitate Access to Health Insurance Coverage for the Unemployed in 

Six Selected States 

State 

State-mandated 

continuation 

coverage 

State-mandated 

guaranteed 

conversion 

State-mandated 

guaranteed 

issue High-risk pool 

Colorado 9 9 9

New Jersey 9 9

North Carolina 9 9 

Ohio 9 9 9

Oregon 9 9

Utah 9 9 9

Source: State information, October 2002. 

Unemployed workers were less likely than their children to be eligible 

for coverage under state Medicaid or SCHIP programs because adult 

eligibility thresholds were less generous than those for children. 

Coverage of adults was limited in four of the six states, as average 

unemployment benefits were at least twice the amount of income 

allowed for Medicaid eligibility. Colorado, Oregon, and Utah have 

received recent federal approval to expand Medicaid and SCHIP 

coverage for certain low-income adults. While New Jersey had a similar 

expansion of coverage in 2001, it suspended new enrollment for adults in 

June 2002 due to budgetary constraints. 

We incorporated technical comments provided by representatives from 

states’ insurance departments, high-risk pools, and Medicaid programs, 

as appropriate. We did not obtain comments from the Department of 

Health and Human Services because we did not assess its role in these 

programs. 

HEALTH INSURANCE 

States’ Protections and Programs Benefit 

Some Unemployed Individuals 

www.gao.gov/cgi-bin/getrpt?GAO-03-191.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact 

Kathryn G. Allen (202) 512-7114. 

Highlights of GAO-03-191, a report to the 

Ranking Minority Member, Senate 

Committee on Finance and Senator 

Gordon Smith. 

 October 2002 

In March 2001, the longest 

economic expansion in United 

States history ended, and the 

country entered a recession, 

signified in part by a significant 

increase in unemployment. 

Because rising unemployment can 

adversely affect individuals’ health 

insurance status, GAO was asked 

to review the policies of six states 

with significant recent increases in 

unemployment to 

(1) identify protections in place 

that assist unemployed individuals 

in maintaining or obtaining health 

insurance coverage and 

(2) assess the extent to which 

unemployed individuals and their 

families can rely on Medicaid and 

the State Children’s Health 

Insurance Program (SCHIP) as a 

source of health insurance. 
Page i GAO-03-191 Health Insurance for Unemployed Individuals 

Letter 1

Results in Brief 2

Background 4

Various State Protections Offer Assistance, but Unemployed 

Individuals Generally Bear the Full Premium Cost 14

Eligibility for Medicaid and SCHIP Programs Is Limited for 

Unemployed Adults Despite Expansions in Some States 23

Concluding Observations 29

State Comments 30

Appendix I HIPAA Group-to-Individual Portability in Six 

States 32 

Related GAO Products 34 

Tables 

Table 1: Insurance Status of Nonelderly Adults, by Employment 

Level, Firm Size, and Industry, 2001 8

Table 2: Changes in Unemployment by State, March 2001 to March 

2002 10

Table 3: Percentage Change in Employment for Selected Industries 

for Six States, March 2001 to March 2002 11

Table 4: Unemployment Benefits in Six States, First Quarter 2002 12

Table 5: State Protections That Facilitate Access to Health 

Insurance Coverage for the Unemployed in Six Selected 

States 15

Table 6: State Continuation Coverage Requirements and Benefits 17

Table 7: Selected Characteristics of the Standard Guaranteed Issue 

Plans Covering Hospital and Medical Services in New 

Jersey, September 2002 19

Table 8: Selected Characteristics of High-Risk Pools in Three 

States, June 2002 21

Table 9: Receipt of Unemployment Benefits Often Made Parents 

Ineligible for Medicaid 24

Table 10: Asset Exclusions for Parents under Medicaid in Six 

States 25

Table 11: Medicaid and SCHIP Family Income Eligibility Limits and 

Asset Tests for Children’s Eligibility in Six States, 2002 26

Contents 
Page ii GAO-03-191 Health Insurance for Unemployed Individuals 

Table 12: Eligibility Levels for Childless Adults and Parents 

Applying for Medicaid, 2002 27

Table 13: Approaches to Group-to-Individual Portability in Six 

States 33

Figures 

Figure 1: Source of Health Insurance Coverage of Nonelderly 

Adults and Children, 2001 5

Figure 2: States’ Shares of Nonelderly Residents Who Are 

Uninsured Compared to U.S. Average, March 2002 9

Abbreviations 

COBRA Consolidated Omnibus Budget Reconciliation Act of 1985 

CPS Current Population Survey 

HHS Department of Health and Human Services 

HIPAA Health Insurance Portability and Accountability Act of 1996 

HMO health maintenance organization 

MEPS Medical Expenditures Panel Survey 

PPO preferred provider organization 

SCHIP State Children’s Health Insurance Program 
Page 1 GAO-03-191 Health Insurance for Unemployed Individuals 

October 25, 2002 

The Honorable Charles E. Grassley 

Ranking Minority Member 

Committee on Finance 

United States Senate 

The Honorable Gordon Smith 

United States Senate 

In March 2001, the longest economic expansion in United States history 

ended, and the country entered a recession, as indicated by a significant 

decline in overall business activity, including employment, over several 

months.1

 From March 2001 to March 2002, the national unemployment rate 

increased from 4.3 percent to 5.7 percent—or from 6.1 to 8.1 million 

unemployed individuals—the highest unemployment rate in more than 6 

years.2

 Since about two-thirds of nonelderly Americans obtain their health 

insurance coverage through an employer, individuals who become 

unemployed face not only a loss of income, but also potentially the loss of 

employer-subsidized health insurance. Although the number of people 

without health insurance increases as the unemployment rate increases, 

the rates of increase are not the same because a sizable number of 

workers (25 percent) do not have health insurance through their 

employers. Workers less likely to receive insurance include those who 

work in industries where employment is cyclical in nature, such as 

agriculture or construction; when they lose their jobs, their health 

insurance status is unaffected. 

Federal laws provide some protections to help newly unemployed 

individuals maintain health insurance coverage by allowing them to 

 1

See The Business-Cycle Peak of March 2001, National Bureau of Economic Research 

(Nov. 26, 2001). The National Bureau of Economic Research identifies recessions on the 

basis of several indicators, including employment, sales in the manufacturing and trade 

sectors, and industrial production. 

2

The U.S. Bureau of Labor Statistics characterizes individuals as unemployed if they are at 

least 16 years of age, do not have a job, have actively looked for work in the prior 4 weeks, 

and are currently available for work. Persons who were waiting to be recalled to a job from 

which they had been laid off need not have been looking for work to be classified as 

unemployed. Persons who have lost a job and are not looking for work are not counted as 

unemployed. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-191 Health Insurance for Unemployed Individuals 

purchase coverage under their former employer’s group health plan or to 

obtain coverage through the individual insurance market. Because states 

regulate many aspects of health insurance, they may also require 

additional protections for unemployed workers. Two federal-state health 

financing programs for certain low-income individuals—Medicaid and the 

State Children’s Health Insurance Program (SCHIP)—may also be a source 

of health insurance coverage for unemployed individuals or their families. 

In light of the recent rise in unemployment and its relationship to health 

insurance coverage, you asked us to review selected states with significant 

recent increases in unemployment to (1) identify what protections states 

have to assist unemployed individuals in maintaining or obtaining health 

insurance coverage and (2) assess the extent to which unemployed 

individuals and their families can rely on these states’ Medicaid and SCHIP 

programs as a source of health insurance coverage. 

To examine these issues, we analyzed national and state employment data 

from the Bureau of Labor Statistics and data on the uninsured from the 

2002 Current Population Survey (CPS) Annual Demographic Supplement.3

Also, we reviewed six states (Colorado, New Jersey, North Carolina, Ohio, 

Oregon and Utah) that had above-average increases in unemployment 

from March 2001 to March 2002. We also contacted representatives from 

states’ insurance and labor departments and Medicaid programs and 

obtained statutory, regulatory and other information on state protections 

and programs that assist unemployed individuals in maintaining or 

obtaining health insurance coverage. We conducted our work from May 

2002 through October 2002 in accordance with generally accepted 

government auditing standards. 

The six states we reviewed had established various protections prior to 

the economic downturn to assist individuals in maintaining or obtaining 

health insurance coverage. These protections benefit individuals who have 

lost their jobs in maintaining coverage under their former employer’s 

group plan or in obtaining individual health insurance. They included: 

requiring small businesses to extend their group health coverage to former 

employees and their families if the former employees pay for it; requiring 

insurers to allow individuals to convert group coverage into individual 

 3

Our national review included the District of Columbia, which we referred to as a state for 

purposes of this report. 

Results in Brief 
Page 3 GAO-03-191 Health Insurance for Unemployed Individuals 

coverage; and establishing high-risk pools that offer comprehensive health 

insurance benefits to individuals with acute or chronic health conditions. 

However, because states generally did not provide subsidies and the 

individual thus bore the full cost of the premium under the state 

protections, unemployed persons generally had to pay more for coverage 

than they would as participants in an employer-sponsored plan. For those 

relying on unemployment benefits as their principal income, the premium 

costs under these various protections would absorb a significant share. 

For example, the premiums for the high-risk pool in one state nearly 

equaled the entire average unemployment benefit. The six states we 

reviewed did not have data on the number of individuals who lost their 

health insurance during the current economic downturn and therefore 

could not quantify the number who might benefit from these protections. 

A few states quantified the number of persons who actually used certain 

protections. For example, states tracked participation in high-risk pools 

and found increased enrollment from March 2001 to March 2002. However, 

increased participation could not be attributed solely to increases in the 

number of unemployed because other conditions, such as insurers leaving 

the market in the state, may have also had an effect. 

Unemployed individuals who look to states’ Medicaid and SCHIP 

programs for health insurance coverage for themselves and their families 

may find their eligibility limited. Unemployed workers were less likely 

than their children to be eligible for coverage under Medicaid or SCHIP 

because adult eligibility thresholds were less generous than those for 

children. In four of the six states we reviewed, average unemployment 

benefits were at least twice the amount of income allowed for Medicaid 

eligibility. Two states with lower income eligibility for adults—Utah and 

Colorado—have received federal approval to expand Medicaid and SCHIP 

coverage for some adults who would otherwise be ineligible for public 

coverage—a potential benefit for some unemployed individuals. In 

addition, Oregon also recently received federal approval for program 

expansions. In the wake of recent fiscal pressures resulting from the 

economic downturn, however, New Jersey recently suspended new 

enrollment for adults for its Medicaid and SCHIP programs due to 

budgetary constraints. In addition, some states’ efforts to expand coverage 

for uninsured adults, in part by providing adult coverage with funds 

intended for children, has raised significant federal fiscal and legal issues. 

Representatives from these states’ insurance departments, high-risk pools, 

and Medicaid programs provided technical comments on a draft of this 

report, which we incorporated as appropriate. We did not obtain 

comments from the Department of Health and Human Services (HHS) 
Page 4 GAO-03-191 Health Insurance for Unemployed Individuals 

because we did not assess HHS’s role or performance with respect to 

protections or programs that may benefit unemployed individuals. 

Employer-sponsored coverage is the predominant source of health 

insurance in the United States. In 2001, 67 percent of all nonelderly adults 

(over 118 million) and 64 percent of all children (46 million) obtained 

health insurance through an employer (see fig. 1). Nearly all large firms 

and almost half of smaller firms offer health insurance coverage for their 

employees.4

 Federal tax laws provide incentives for employers to pay 

some or all of the premiums because their contributions are tax deductible 

as a business expense; the employer-paid portion of the premiums is also 

not considered taxable income for employees. Although the share of the 

premiums paid by employers varies with the size of the firm and the type 

of health plan, firms pay an average of more than 80 percent of the 

premiums for single coverage and more than 75 percent for family 

coverage.5

 Also, for many individuals, the premiums for employment-based 

insurance are lower than those in the private market for comparable 

individual coverage. 

 4

According to the 2000 Medical Expenditures Panel Survey (MEPS), 59 percent of all firms 

offer health insurance coverage, with 97 percent of firms with more than 50 employees and 

47 percent of firms with fewer than 50 employees offering coverage. 

5

According to the 2000 MEPS data, firms with fewer than 50 employees paid an average of 

85 percent of the premiums for single coverage and 72 percent for family coverage. Larger 

firms (with 50 or more employees), paid an average of 82 percent of the premiums for 

single coverage and 77 percent for family coverage. 

Background 
Page 5 GAO-03-191 Health Insurance for Unemployed Individuals 

Figure 1: Source of Health Insurance Coverage of Nonelderly Adults and Children, 2001 

Note: Due to rounding, percentages may not add to 100 percent. 

a

Includes Medicare and military health insurance coverage. 

Source: GAO Analysis of the 2002 Current Population Survey Annual Demographic Supplement. 

Low-income individuals without access to employer-based insurance 

coverage may qualify for Medicaid or SCHIP. These public insurance 

financing programs covered over 40 million low-income people at a cost of 

about $232 billion in federal and state expenditures in 2001. 

Established in 1965, Medicaid is a joint federal-state entitlement program 

that finances health care coverage for certain low-income individuals. 

Medicaid eligibility is based in part on family income and assets. States set 

their own eligibility criteria within broad federal guidelines. For example, 

states vary in the kind and amount of income they exclude from 

consideration when determining eligibility. Similarly, while some states set 

a ceiling on the value of assets—such as cars, savings accounts, or 

retirement income—that individuals may have available to them in order 

to be deemed eligible for Medicaid, other states have no asset test for 

eligibility. To the extent that asset tests are present in a state’s Medicaid 

program, individuals would need to “spend down” or dispose of their 

assets to become eligible for Medicaid. 

Medicaid and SCHIP 
Page 6 GAO-03-191 Health Insurance for Unemployed Individuals 

More than half of the individuals enrolled in Medicaid are children. 

Federal law requires states to provide Medicaid coverage to children age 5 

and under if their family income is at or below 133 percent of the federal 

poverty level and to children age 6 to 19 in families with incomes at or 

below the federal poverty.6

 Most states have received federal approval to 

set income eligibility thresholds that expand their Medicaid programs 

beyond the minimum federal statutory levels for children. 

Medicaid eligibility for nondisabled adults is more limited. Federal law 

requires states to provide Medicaid coverage to pregnant women up to 133 

percent of the federal poverty level, and mandatory eligibility for parents 

is linked to the Medicaid family coverage category established in the 1996 

federal welfare reform law.7

 At a minimum, federal law requires states to 

offer Medicaid coverage to parents in families that meet the income and 

other eligibility rules that the state had in place on July 16, 1996, for 

determining eligibility for welfare assistance. Nationwide, considerable 

variation in Medicaid eligibility thresholds for parents exists. For example, 

Alabama covers parents whose family income is up to 13 percent of the 

federal poverty level. At the other end of the spectrum, Minnesota covers 

parents with family incomes up to 275 percent of the federal poverty level. 

The Medicaid statute does not generally provide for mandatory or optional 

coverage of nondisabled childless adults. However, some states have 

 6

For 2002, the federal poverty level is $8,860 a year for a single individual and $15,020 for a 

family of three. Medicaid eligibility is mandatory for all children born after September 30, 

1983, whose family incomes are less than or equal to the federal poverty level. See 42 

U.S.C. § 1396a(a)(10)(A)(i)(VII), (l)(1)(D) and (l)(2)(C) (2000). 

7

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. No. 

104-193, 110 Stat. 2105. 
Page 7 GAO-03-191 Health Insurance for Unemployed Individuals 

received federal approval to expand their Medicaid programs to include 

coverage for some of them.8

In 1997, the Congress created SCHIP to provide health coverage to 

children living in families whose incomes exceed the eligibility limits for 

Medicaid. While SCHIP is generally targeted to children in families with 

incomes at or below 200 percent of the federal poverty level, each state 

may set its own income eligibility limits, within certain guidelines.9

 As of 

January 2002, states’ upper income eligibility threshold for SCHIP ranged 

from 133 to 350 percent of the federal poverty level. Unlike Medicaid, 

which entitles all those eligible to coverage, SCHIP has a statutory funding 

limit of $40 billion over 10 years (fiscal years 1998 through 2007). Under 

SCHIP, states can cover the entire family—including parents or custodians 

of eligible children—if it is cost-effective to do so, meaning that the 

expense of covering both adults and children in a family does not exceed 

the cost of covering just the children. Similar to Medicaid, states can 

obtain federal approval of SCHIP expansions through a section 1115 

waiver. 

While more than 85 percent of Americans obtain health insurance 

coverage from the private insurance market or public programs, 40.9 

million nonelderly Americans (16.5 percent) had no health insurance in 

2001. Approximately 75 percent of the uninsured nonelderly adults had 

jobs. Individuals working part time, for small firms, or in certain 

industries, such as agriculture or construction, were more likely to be 

uninsured (see table 1). Young adults, minorities, and low-income persons 

 8

Under section 1115 of the Social Security Act, the Secretary of Health and Human Services 

can waive many of the statutory requirements in the case of experimental, pilot, or 

demonstration projects that are likely to promote Medicaid’s objectives. See 42 U.S.C. § 

1315 (2000). Use of this authority allows states to provide services or cover individuals not 

normally eligible for Medicaid and SCHIP and to receive federal funds under these 

programs for services and populations not otherwise eligible. To receive approval for 

waivers, states must show that expansions of coverage should not result in the federal 

government spending more money in the state than would have been spent in the absence 

of the waiver. We have reported that section 1115 waivers approved for several states were 

not budget neutral. See Medicaid Section 1115 Waivers: Flexible Approach to Approving 

Demonstrations Could Increase Federal Costs, GAO/HEHS-96-44 (Washington, D.C.: Nov. 

8, 1995) and Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 

Projects Raise Concerns, GAO-02-817 (Washington, D.C.: July 12, 2002). 

9

SCHIP allows a state to expand eligibility up to 50 percentage points above its Medicaid 

income eligibility standard in 1997. As with the Medicaid program, SCHIP allows states to 

set their own income and asset eligibility criteria. 42 U.S.C. § 1397jj(b)(1)(B)(ii) (2000). 

Characteristics of 

Uninsured Individuals 
Page 8 GAO-03-191 Health Insurance for Unemployed Individuals 

were also more likely to be uninsured.10 The percentage of uninsured is 

generally higher in the South and West and lower in the Midwest and 

Northeast (see fig. 2). Texas had the highest uninsured rate of nonelderly 

Americans (25.9 percent) of any state in 2001, while Iowa had the lowest 

(8.7 percent). 

Table 1: Insurance Status of Nonelderly Adults, by Employment Level, Firm Size, 

and Industry, 2001 

Employment characteristic Percentage uninsured 

By employment level 

Part-time 24.0

Full-time 13.8

By firm size 

Fewer than 10 employees 30.3

10 to 24 employees 25.7

25 to 99 employees 18.9

100 or more employees 10.9

By industry 

Agriculture, forestry and fishing 38.2

Construction 31.9

Trade 23.9

Services 15.0

Mining 12.9

Transportation and public utilities 12.7

Manufacturing 11.8

Finance, insurance and real estate 9.2

Government 4.3

Source: GAO analysis of the 2002 Current Population Survey Annual Demographic Supplement. 

 10See U.S. General Accounting Office, Health Insurance: Characteristics and Trends in 

the Uninsured Population, GAO-01-507T (Washington, D.C.: Mar. 13, 2001). 
Page 9 GAO-03-191 Health Insurance for Unemployed Individuals 

Figure 2: States’ Shares of Nonelderly Residents Who Are Uninsured Compared to U.S. Average, March 2002 

Source: GAO Analysis of the 2002 Current Population Survey Annual Demographic Supplement. 
Page 10 GAO-03-191 Health Insurance for Unemployed Individuals 

From March 2001 to March 2002, the national unemployment rate 

increased 1.4 percentage points, from 4.3 percent to 5.7 percent, with nine 

states experiencing above-average increases. The largest percentage point 

increases occurred in Colorado (2.6), Oregon (2.5), and Utah (2.0) (see 

table 2). 

Table 2: Changes in Unemployment by State, March 2001 to March 2002 

Change 

(percentage points) State 

2.6 Colorado 

2.5 Oregon 

2.0 Utah 

1.9` Ohio 

1.8 Arizona, New Jersey 

1.7 California, North Carolina 

1.6 New York 

1.5 Maryland, New Mexico, Tennessee, Texas 

1.4 United States, Virginia 

1.3 Florida, Mississippi, Wisconsin 

1.2 Massachusetts, Michigan 

1.1 Nevada, Pennsylvania 

1.0 Alabama, New Hampshire, Indiana 

0.9 Georgia, Illinois, South Carolina, Washington, West Virginia 

0.8 Idaho, Minnesota 

0.7 Connecticut, Missouri 

0.6 Maine, Nebraska, Oklahoma, Vermont 

0.4 Hawaii, North Dakota 

0.3 Arkansas, District of Columbia, Iowa, Kentucky 

0.2 Kansas, South Dakota, Wyoming 

0.1 Delaware 

0.0 Alaska, Montana 

-0.2 Louisiana 

-0.5 Rhode Island 

Source: U.S. Bureau of Labor Statistics data. 

Across the six states we reviewed—Colorado, New Jersey, North Carolina, 

Ohio, Oregon and Utah—the greatest unemployment increases were 

generally seen in manufacturing, construction, and transportation and 

public utilities (see table 3). 

Changes in Employment 
Page 11 GAO-03-191 Health Insurance for Unemployed Individuals 

Table 3: Percentage Change in Employment for Selected Industries for Six States, March 2001 to March 2002 

Industry Colorado New Jersey North Carolina Ohio Oregon Utah

Construction -5.2 2.2 -3.6 -3.2 -10.1 -8.2

Finance, insurance and real estate -1.0 2.6 -0.8 0.0 1.0 0.7

Government 3.9 2.0 1.4 1.4 0.8 1.4

Manufacturing -8.8 -6.3 -6.4 -4.1 -7.5 -6.8

Mining 8.9 0.0 2.6 -3.1 -11.1 -5.0

Services -3.3 0.3 0.7 0.0 -0.9 1.4

Trade -1.3 0.0 -0.6 -1.1 -1.3 -1.5

Transportation and public utilities -7.0 -3.7 -1.4 -2.2 -3.5 -3.3

Source: U. S. Bureau of Labor Statistics data. 

Unemployed individuals may be eligible for financial assistance through 

the Unemployment Insurance Program, a federal-state partnership 

designed to partially replace the lost earnings of individuals who become 

unemployed through no fault of their own.11 While program requirements 

vary by state, individuals eligible for unemployment insurance generally 

(1) have worked for a specified period in a job covered by the program, 

(2) left the job involuntarily, and (3) are available, able to work, and 

actively seeking employment. Most states provide a maximum of 26 weeks 

of benefits, although benefits in some states have been extended for an 

additional 13 weeks in times of high unemployment.12 Benefits are 

generally based on a percentage of an individual’s earnings over the prior 

year, up to a maximum amount. The national average weekly 

unemployment benefit was $254 in the first quarter of 2002, with benefits 

lasting an average of nearly 15 weeks. In the six states we reviewed, the 

weekly unemployment benefit ranged from $253.80 in Ohio to $327.15 in 

New Jersey (see table 4). 

 11Established in 1935 by the Social Security Act, the Unemployment Insurance Program is 

funded through federal and state taxes levied on employers. 

12On March 9, 2002, the President signed the Temporary Extended Unemployment 

Compensation Act of 2002, which provides eligible individuals with up to 13 weeks of 

federally financed extended unemployment benefits. Pub. L. No. 107-147, Tit. II. 116 Stat. 

21, 26. 
Page 12 GAO-03-191 Health Insurance for Unemployed Individuals 

Table 4: Unemployment Benefits in Six States, First Quarter 2002 

State 

Average weekly benefit amount 

(in dollars) 

Average duration 

(in weeks)

Colorado 311.62 13.0

New Jersey 327.15 17.2

North Carolina 256.24 11.4

Ohio 253.80 14.4

Oregon 261.99 15.3

Utah 275.28 12.7

United States 254.00 14.7

Source: U.S. Department of Labor. 

Although many aspects of health insurance, including premiums, are 

regulated at the state level,13 two federal laws— the Consolidated Omnibus 

Budget Reconciliation Act of 1985 (COBRA)14 and the Health Insurance 

Portability and Accountability Act of 1996 (HIPAA)15—established 

requirements designed to help certain individuals maintain health 

coverage after loss of employment. 

COBRA provided that firms with 20 or more employees offer former 

employees and their dependents the opportunity to continue their group 

coverage for at least 18 months.16 To qualify for COBRA benefits, former 

employees must have been covered by the employer’s plan the day before 

they stopped working at the firm. Former employees are eligible only for 

the health plan coverage that they received while employed. COBRA 

coverage is not available if the former employer discontinues health 

benefits to all employees, as in a company closure. 

 13While all states have enacted laws that require insurers to provide certain health care 

benefits, certain types of health insurance plans are exempt from these requirements. The 

Employee Retirement Income Security Act of 1974 generally preempts states from 

regulating employers that assume the risk for, or “self-fund,” their employees’ health 

benefits. 

14Pub. L. No. 99-272, 100 Stat. 83, 222 (1986). 

15Pub. L. No. 104-191, 110 Stat. 1937, 1939. 

16Under certain circumstances unrelated to job loss, such as the case of a covered 

employee’s death, spouses and dependent children are able to continue group coverage 

under COBRA for up to 36 months. 

Federal Protections 
Page 13 GAO-03-191 Health Insurance for Unemployed Individuals 

While employers must allow COBRA-eligible former employees to 

continue receiving coverage under the employer’s group health plan, the 

employer does not have to pay for it. The former employee can be required 

to pay the full cost of the group health premium plus 2 percent, which is 

designed to cover the employer’s administrative cost of keeping the former 

employee in the plan.17 Based on data from a 2002 survey of employers, the 

average cost of COBRA coverage is approximately $260 a month for an 

individual and $676 a month for a family.18 Based on a survey of a national 

sample of 1,001 nonelderly adults, a recent study estimated that because of 

the cost of COBRA continuation coverage, “only 23 percent of employed, 

insured adults would be very likely to participate in the COBRA program if 

they lost their jobs.”19

Unlike COBRA, which provided the opportunity for individuals losing their 

jobs to continue their private group health insurance, HIPAA provisions 

guarantee certain individuals losing group coverage the right to purchase 

coverage in the individual market.20 HIPAA provides guaranteed access to 

health coverage for individuals who, among other criteria, had at least 18 

months of coverage without a break of more than 63 days and with the 

most recent coverage being under a group health plan. HIPAA stipulates 

that states must either require health insurers to make certain of their 

policies available to qualifying individuals or use an “alternative 

 17The Trade Act of 2002, Pub. L. No. 107-210, enacted on August 6, 2002, gives eligible 

individuals an immediate 65 percent refundable tax credit for certain health insurance 

coverage, including COBRA coverage. The credit, which takes effect in November 2002, is 

for workers who lose their job as a result of trade agreements and for retirees age 55 to 64 

who lack health care benefits and whose former employer’s pension plan was taken over 

by the Pension Benefit Guaranty Corporation. The Congressional Budget Office estimated 

that this legislation would increase the number of workers eligible for coverage by about 50 

percent, to nearly 200,000 annually; the refundable portion of this credit is estimated to 

cost the federal government $1.6 billion over fiscal years 2003 through 2012. 

18Costs were calculated based on 102 percent of average monthly premiums for employersponsored health plans. See The Kaiser Family Foundation and Health Research and 

Educational Trust, Employer Health Benefits: 2002 Annual Survey (Menlo Park, Calif.: 

2002). 

19Jennifer N. Edwards, Michelle M. Doty and Cathy Shoen, The Erosion of Employer-Based 

Health Coverage and the Threat to Workers’ Health Care: Findings from The 

Commonwealth Fund 2002 Workplace Health Insurance Survey (New York, N.Y.: 

August 2002). 

20HIPAA also provides protections for individuals changing jobs and obtaining other 

coverage by setting group market limitations on preexisting conditions, exclusion periods, 

previous coverage credit requirements, and prohibitions on exclusions based on health 

status. 
Page 14 GAO-03-191 Health Insurance for Unemployed Individuals 

mechanism” to offer them coverage. An example of an alternative 

mechanism is a state-sponsored high-risk pool, which offers 

comprehensive insurance coverage to individuals with preexisting health 

conditions who are otherwise unable to obtain coverage in the individual 

market or who may be able to obtain coverage only at a prohibitive cost. 

(Appendix I describes how the six states that we reviewed guarantee 

access to coverage under HIPAA.) As with COBRA, individuals bear the 

full cost of individual coverage received under HIPAA. Since HIPAA 

provides for coverage in the individual insurance market, in which 

premiums are generally based on the characteristics of the individual 

applicant, this coverage is likely to be more costly for many applicants for 

a similar level of coverage than premiums for groups, where risk is spread 

over all members of the group. The differences will be smaller in some 

states that have imposed restrictions on how much insurers can vary 

premiums based on an individual’s characteristics. 

The six states we reviewed had instituted various protections that might 

assist individuals who have lost their jobs in maintaining or obtaining 

health insurance. Unemployed individuals, however, generally bore the full 

cost of the premium. States did not have data on the number of individuals 

who lost their health insurance during the economic decline and thus, who 

could benefit from these protections, but did have data on the number of 

individuals using some of the protections. 

The six states we reviewed had in place a variety of protections, which 

were established prior to the economic downturn. Unemployed 

individuals, however, were generally responsible for bearing the full costs 

of purchasing health insurance. Key protections to assist unemployed 

individuals in maintaining health insurance coverage included: 

• State-mandated continuation coverage, through which states require small 

businesses to extend their group health coverage to former employees and 

their families if the former employees pay for it; 

• Guaranteed conversion, through which states require insurers to give 

eligible individuals the ability to convert their group coverage to an 

individual health insurance policy; 

Various State 

Protections Offer 

Assistance, but 

Unemployed 

Individuals Generally 

Bear the Full 

Premium Cost 

States’ Protections 

Generally Allow 

Unemployed Individuals to 

Purchase Insurance at Full 

Cost 
Page 15 GAO-03-191 Health Insurance for Unemployed Individuals 

• Guaranteed issue, through which states require insurers to offer coverage 

to individuals who do not have access to group coverage or public 

insurance; and 

• High-risk pools, in which states create associations that offer 

comprehensive health insurance benefits to individuals with acute or 

chronic health conditions. 

Table 5 indicates the extent to which the six states we reviewed had 

adopted such protections. 

Table 5: State Protections That Facilitate Access to Health Insurance Coverage for 

the Unemployed in Six Selected States 

State 

Statemandated 

continuation 

coverage 

Statemandated 

guaranteed 

conversion 

Statemandated 

guaranteed 

issue 

High-risk 

pool 

Colorado 9 9 9

New Jersey 9 9 

North Carolina 9 9 

Ohio 9 9 9 

Oregon 9 a 9

Utah 9 9 b 9

Total 6 4 2 3 

a

Oregon requires insurers to offer either a low-cost or prevailing benefit plan to eligible individuals 

leaving that insurers’ group coverage. To be eligible, individuals must, among other criteria, be state 

residents, have at least 6 months of prior group coverage, and not be eligible for Medicare or 

Medicaid. 

b

Utah does not have a guaranteed issue law, but residents who do not meet the medical criteria for 

the state’s high-risk pool are guaranteed access to a policy from the private insurance company that 

had declined them coverage. 

Source: State information, October 2002. 

Of the six states we reviewed, only Oregon assisted lower income 

unemployed individuals in paying for the cost of premium coverage. 

Previously funded solely with state resources, the program was unable to 

expand enrollment for nearly 3 years and had a significant waiting list due 
Page 16 GAO-03-191 Health Insurance for Unemployed Individuals 

to budget constraints. However, in October 2002, Oregon received 

approval to expand this program using federal funds.21

Each of the six states that we reviewed had a health care coverage 

continuation law, which applied to employers with fewer than 20 

employees and thus were not subject to COBRA requirements. While the 

states required that employers make health insurance coverage available 

to eligible individuals, the employers were not required to pay for this 

coverage. In New Jersey, North Carolina and Utah, eligible individuals can 

be required to pay up to 102 percent of the cost of the premium charged 

under their former employer’s plan (the full cost of the group health 

premium plus a 2 percent fee to cover the employer’s administrative costs) 

(see table 6). In the other three states, individuals may be required to pay 

up to the full cost of the premium, but no administrative fee may be added. 

Like COBRA, the state health care coverage continuation laws did not 

apply to companies that terminate coverage, such as when going out of 

business. Nationally, premiums for state continuation coverage averaged 

approximately $260 a month for an individual and $676 a month for a 

family in 2001, which equals 24 to 61 percent of the average unemployment 

benefit.22

 21Begun in 1998 as a state-funded program, Oregon’s premium assistance program paid 

from 70 to 95 percent of the health insurance premiums for individuals with incomes below 

170 percent of the federal poverty level. The program had over 3,300 enrollees and a 

waiting list of more than 29,000 as of June 2002. With the newly approved federal waiver, 

the program will pay from 50 to 95 percent of health insurance premiums for individuals 

with incomes up to 185 percent of the federal poverty level. Expanded eligibility for 

premium assistance is scheduled to begin on November 1, 2002. The state expects 

enrollment in the program to increase by approximately 25,000 people, with enrollment to 

be limited based on the availability of state funding. 

22Costs were calculated based on 102 percent of average monthly premiums for employersponsored health plans. Actual costs of state continuation coverage may be higher or lower 

depending on the characteristics of the firm or health insurance policy. See The Kaiser 

Family Foundation and Health Research and Educational Trust, Employers Health 

Benefits: 2002 Annual Survey (Menlo Park, Calif.: 2002). 

State-Mandated Continuation 

Coverage 
Page 17 GAO-03-191 Health Insurance for Unemployed Individuals 

Table 6: State Continuation Coverage Requirements and Benefits 

State 

Maximum premium 

(expressed as a 

percentage of 

group rate)

Prior continuous 

coverage 

requirement

(in months)

Maximum required 

length of coverage

(in months)

Colorado 100 6 18

New Jersey 102 a 12

North Carolina 102 3 18

Ohio 100 3 6

Oregon 100 3 6

Utah 102 6 6

a

Individuals must have been covered by employer-sponsored insurance on their last day of 

employment. 

Source: State continuation coverage laws, as of October 2002. 

Eligibility for, and the length of required coverage under, states’ 

continuation coverage laws were often more limited than under COBRA. 

While under COBRA individuals must only be insured the day before they 

stop working, five of the six states that we reviewed had more stringent 

requirements. They required individuals to have been continuously insured 

for the 3 to 6 months immediately prior to the separation from their job. 

New Jersey, Ohio, Oregon, and Utah required employers to offer a year or 

less of continuation coverage, compared to 18 months under COBRA and 

in Colorado and North Carolina. 

Once individuals exhaust their COBRA or state health care continuation 

coverage, they may become eligible to convert to an individual policy. 

Although the HIPAA provisions require states to ensure that eligible 

individuals can move from group to individual health insurance coverage, 

state guaranteed conversion is specific to an insurer. Four of the six states 

we reviewed (Colorado, North Carolina, Ohio, and Utah) required insurers 

to provide individual policies to eligible individuals previously covered 

under a group policy sold by their company. To be eligible for guaranteed 

conversion, individuals had to have been continuously insured by the 

group health plan, or its predecessor, for 3 to 12 months (depending on the 

state) prior to their application for conversion—requirements that are less 

stringent than the 18 months of prior continuous coverage under HIPAA.23

 23HIPAA does allow individuals to have a break in coverage of 63 days or less and still 

remain eligible. 

State-Mandated Guaranteed 

Conversion 
Page 18 GAO-03-191 Health Insurance for Unemployed Individuals 

State laws on guaranteed conversion contained no maximum length of 

required coverage; as with other individual health insurance policies, 

beneficiaries could renew the policies as long as they agreed to continue 

paying the premiums and did not commit fraud. Individuals were 

responsible for the conversion plan premiums, which could generally be 

based on the demographic and health characteristics of the individual. 

Thus, individual coverage under conversion policies—for which 

individuals pay the full premium—was generally more expensive than 

group coverage especially for higher-risk individuals. 

Of the six states we reviewed, New Jersey and Ohio had “guaranteed 

issue,” which required insurers to offer coverage to all individuals in the 

state who were not eligible for group coverage or public insurance 

programs, if they were willing to pay for it. According to Ohio statute, 

insurers in that state could charge an individual up to 2.5 times the rate 

charged to another individual with a similar policy.24 In New Jersey, 

insurers were required to charge each applicant the same price for five 

standard plans, but monthly premiums varied by insurer.25 For a policy 

issued by a health maintenance organization (HMO) in New Jersey, with a 

$30 copayment per visit to the doctor, monthly premiums for single 

coverage ranged from $324 to more than $394, depending on the insurer, 

while premiums for the other standard health plans were more 

expensive.26 (A comparison of the five standard plans is in table 7.) In the 

four states we reviewed that did not have guaranteed issue laws, insurance 

companies could choose not to offer coverage to individual applicants and 

have few or no restrictions on what they could charge individuals based 

on their health status, age, or other factors. 

 24For individuals eligible for HIPAA, Ohio statute limits the rate to twice the midpoint rate 

charged any other individual with a policy with similar copayments and deductibles. For 

individuals not eligible for HIPAA, Ohio statute limits the rate to 2.5 times the highest rate 

charged to any other individual with a policy with similar copayments and deductibles. 

25Although New Jersey did not regulate premium rates, insurers were required to pay at 

least 75 cents in benefits for every dollar received in premiums or refund a portion of the 

premiums. 

26The four remaining standard plans can either be indemnity plans or preferred provider 

organizations (PPO). The indemnity plans allow individuals to choose any physician or 

hospital for care, while the PPOs pay for a greater portion of care received from a selected 

panel of doctors and hospitals typically reimbursed on a fee-for-service basis. 

State-Mandated Guaranteed 

Issue 
Page 19 GAO-03-191 Health Insurance for Unemployed Individuals 

Table 7: Selected Characteristics of the Standard Guaranteed Issue Plans Covering Hospital and Medical Services in New 

Jersey, September 2002 

 Indemnity/PPO 

Type of plana Plan Ab Plan B Plan C Plan D HMO

Individuals’ share of provider 

covered charges 

50% 40%c30% 20% Copayment 

per visitd

Individuals’ maximum out of 

pocket cost (above their 

deductible) $5,000e

 $3,000e$2,500e $2,000e f 

Range in monthly premiums for 

single coverage across carrierg

 

Deductible 

 $500 Not offered Not offered Not offered $1,200 - $8,127 h 

 $1,000 $434 - $2,150 $480 - $2,457 $381 - $3,071 $423 - $4,914 h 

 $2,500 $348 - $1,843 $409 - $2,150 $309 - $2,457 Not offered h 

 $5,000 $237 - $416 Not offered Not offered Not offered h 

 $10,000 $153 - $311 Not offered Not offered Not offered h 

Copayment 

 $10 h h h h $487 - $727 

 $15 h h h h $462 - $512 

 $20 h h h h $379 - $463 

 $30 h h h h $324 - $394 

Note: Plans A through D, and the HMO plan, represent standard insurance packages defined by the 

state, which were available from multiple insurers. 

a

New Jersey’s standard guaranteed issue included three different types of health plans: (1) indemnity 

plans, which allowed individuals to choose any physician or hospital for care, (2) PPOs, which paid 

for a greater portion of care received from a selected panel of doctors and hospitals typically 

reimbursed on a fee-for-service basis, and (3) HMOs, which were prospectively paid a fixed monthly 

fee per patient to provide or arrange for most health services and, in turn, pay providers either 

retrospectively for each service delivered on a fee-for-service basis or through prospective capitation 

payment arrangements. 

b

The state refers to this plan as Plan A/50. 

c

Beneficiaries must pay an additional $200 per day hospital charge for each of the first 5 days of 

hospitalization, up to a maximum of $2,000 per person each year. 

d

HMOs offered copayment options of $10, $15, $20 and $30 for physician and outpatient services. 

Other copayments applied to inpatient hospitalizations, emergency room visits, and maternity care. 

Also, prescription drugs could be covered subject to either a 50 percent coinsurance or a $15 

copayment, at the option of the carrier. 

e

Under the PPO options, insurers paid 100 percent of charges after total covered charges, paid by 

either the individual or the insurer, reaches $10,000. 

f

Plan did not have a maximum out-of-pocket cost. 

g

All individuals, regardless of age or health status, paid the same premium. 

h

Plan did not have this type of deductible or copayment for policyholders. 

Source: State information. 
Page 20 GAO-03-191 Health Insurance for Unemployed Individuals 

Three of the states we reviewed (Colorado, Oregon, and Utah) have 

established high-risk pools that served individuals with acute and chronic 

conditions.27 The high-risk pools in these three states began operation in 

the early 1990s and also served individuals eligible for coverage under 

HIPAA (see table 8). High-risk pools are subsidized. Because enrollees 

often have major health problems, medical claims costs are high and 

would exceed unsubsidized premiums collected from their enrollees. 

Oregon’s risk pool was subsidized by a fee assessed on insurers based on 

the number of people they cover. Utah subsidized the operation of its highrisk pool with state funds. Colorado used a combination of these 

approaches. 

High-risk pool premiums are higher than standard premiums for individual 

insurance paid by healthy applicants although not necessarily higher than 

a high-risk individual would be charged in the individual market if 

coverage were available. State high-risk pool laws generally capped 

premiums at 125 to 200 percent of comparable standard commercial 

coverage rates. Premiums varied based on factors such as age, geographic 

location, type of health plan, and deductible. One state, Colorado, 

provided a 20 percent premium discount to certain low-income 

individuals. Across the three states we reviewed that had high-risk pools, 

undiscounted premiums for nonelderly adults ranged from less than 10 

percent to close to 100 percent of the average unemployment benefit in the 

state. 

 27Nationally, 30 states have high-risk pools. See Communicating for Agriculture & the SelfEmployed, Comprehensive Health Insurance for High-Risk Individuals: A State-by-State 

Analysis. (Fergus Falls, Minn.: 2002). 

High-Risk Pools 
Page 21 GAO-03-191 Health Insurance for Unemployed Individuals 

Table 8: Selected Characteristics of High-Risk Pools in Three States, June 2002 

State 

(year began 

operation) Medical eligibility requirements 

Number 

enrolleda

Premium limits 

Factors used to 

determine 

premiums for an 

individual 

Range of 

individual 

monthly 

premiums

Colorado 

(1991) 

State residents for at least 6 months 

who 

• were denied coverage because of a 

medical condition; 

• were accepted for coverage, but 

with a premium higher than that 

under the high-risk pool; 

• were accepted for coverage, but 

with a pre-existing condition 

exclusion of greater than 6 months; 

OR 

• have one of 30 acute or chronic 

medical conditions but were not 

necessarily denied coverage. 

3,886 150 percent of the 

standard individual rate 

• Age 

• Gender 

• Smoking status 

• County 

• Deductible 

amount ($300 

to $5,000) 

$75 - $1,283b

Oregon 

(1990) 

Individuals who were denied individual 

health insurance coverage within the 

last 6 months because of their health 

condition. 

8,762 125 percent of the 

prevailing market rate 

for an individual policy 

• Age 

• Geographic 

location 

• Type of health 

planc

$118 - $661

Utah 

(1991) 

State residents for at least 12 months 

or dependent children 25 years of age 

or younger of such individuals, who 

• meet the high-risk pool’s health 

underwriting criteria established 

under Utah statute,d

• apply for coverage not more than 

63 days after being denied 

coverage by a private individual 

insurer, AND 

• pay the established premium. 

OR 

Individuals who terminated similar 

coverage from another state’s highrisk pool within the previous 63 days 

because they were no longer a 

resident of that state and who pay 

premiums for the entire coverage 

period in Utah.e

 

2,061 Generally set at 150 

percent of the prevailing 

premium level for the 

five largest small 

employer insurers in the 

state offering 

comparable coverage 

• Age 

• Deductible 

amount ($500 

to $2,500) 

$152 - $471

a

Enrollment figures represent the total enrollment in the high-risk pool and thus include individuals 

who qualify either because of medical reasons or through HIPAA. 

b

Reflects the premiums for individuals between the ages of 20 and 64. Premiums are lower for 

children and higher for individuals over age 65. Individuals with household incomes of $32,500 or 

less, and with liquid assets of $50,000 or less, can qualify for a 20 percent premium discount. 

c

Premiums in Oregon vary by health plan. Enrollees have a choice of four health plans: a traditional 

indemnity plan, a PPO, HMO, or low cost/limited benefit plan. 
Page 22 GAO-03-191 Health Insurance for Unemployed Individuals 

d

Under the state’s criteria, points were assigned to various medical conditions based on the expected 

medical claims or complications for that condition. Individuals with conditions that have points totaling 

above a specified level were eligible for the high-risk pool. 

e

Under certain circumstances, individuals would be ineligible for the high-risk pool. For example, 

individuals eligible for other public programs that provide medical care were not eligible for the highrisk pool. 

Source: GAO analysis of state information. 

Although Ohio, Oregon, and Utah collected data on the number of 

uninsured residents, none of the states that we reviewed had data 

sufficiently current to determine how many of their residents had lost 

health insurance during the recent economic decline. States’ knowledge of 

any changes in the numbers of individuals benefiting from the different 

states’ protections varied by option and the state, with data most often 

available for the three states’ high-risk pools. None of the states we 

reviewed tracked how many of its residents obtained health coverage 

through state-mandated continuation coverage. Of the four states that 

required insurers to offer conversion plans, only Utah tracked the number 

of policies issued but it did not have data current enough to determine 

whether usage increased during the current economic decline. New Jersey 

tracked the number of individuals receiving individual health coverage 

through its five standard plans. Enrollment in these standard plans 

declined in the past year, which a state representative attributed to the 

rising cost of coverage.28

Each of the three states we reviewed that had high-risk pools tracked 

enrollment in their pools. From March 2001 to March 2002, enrollment in 

high-risk pools increased by 47 percent in Colorado, almost 23 percent in 

Oregon, and 37 percent in Utah. But it is not clear how much of the 

increased participation came from the ranks of the unemployed. For 

example, a Colorado official said a large portion of the increased 

enrollment in the state’s high-risk pool was likely due to insurers leaving 

the individual and small group health insurance market in the state. 

Therefore, it is difficult to determine how much of the increase included 

those dropped from individual or nonemployer-based group coverage and 

how much included the newly unemployed. 

 28The number of individuals covered by standard plans in New Jersey declined by almost 

14,000, from 97,790 individuals in the first quarter of 2001 to 83,896 people in the first 

quarter of 2002. 

States Lack Data on 

Current Numbers of 

Uninsured; Knowledge of 

Beneficiaries’ Use of State 

Protections Varies 
Page 23 GAO-03-191 Health Insurance for Unemployed Individuals 

Given the cost of maintaining coverage under their former employers’ 

health insurance plan or obtaining alternative coverage, unemployed 

individuals may look to states’ Medicaid and SCHIP programs for coverage 

for themselves and their families. Unemployed adults, however, are less 

likely to qualify for these programs than their children due, in part, to less 

generous eligibility levels set for adults than for children. Colorado, 

Oregon, and Utah have recently received federal approval for waivers to 

expand eligibility for adults in Medicaid and SCHIP, which may increase 

coverage for unemployed individuals. In the wake of recent fiscal 

pressures resulting from the economic downturn, however, New Jersey 

has suspended its Medicaid and SCHIP coverage expansion for new 

applicants. Efforts by some states to expand Medicaid and SCHIP 

coverage for uninsured adults have raised significant federal fiscal and 

legal issues, at times providing adult coverage with funds intended for 

children. 

As unemployed adults seek health insurance, they will likely find it more 

difficult to secure coverage under Medicaid or SCHIP for themselves than 

for their children. Under Medicaid, the majority of states had set eligibility 

levels for nondisabled adults that were less generous than those for 

children. 

In the six states we reviewed, Medicaid’s maximum income eligibility 

levels for non-disabled adults were lower than the levels for children.29 In 

Colorado, New Jersey, North Carolina, and Utah, the maximum income 

levels for coverage for these adults were under 50 percent of the federal 

poverty level.30 In contrast, Medicaid and SCHIP coverage for children 

ranged from those in families with incomes up to 170 percent of the 

 29However, on October 15, 2002, Oregon received federal approval to expand Medicaid and 

SCHIP eligibility for children and adults in families with incomes up to 185 percent of the 

federal poverty level. Increased eligibility levels for most adults will be phased in over time 

while eligibility for children and pregnant women is scheduled to be increased to 185 

percent of the federal poverty level on February 1, 2003. 

30While income eligibility levels for adults in New Jersey is currently under 50 percent of 

the federal poverty level, adults already enrolled in Medicaid may have higher incomes due 

to increased eligibility levels established by the state in the past. 

Eligibility for 

Medicaid and SCHIP 

Programs Is Limited 

for Unemployed 

Adults Despite 

Expansions in Some 

States 

Unemployed Adults Are 

Less Likely Than Children 

to Qualify for Medicaid 

and SCHIP Coverage 
Page 24 GAO-03-191 Health Insurance for Unemployed Individuals 

federal poverty level to those in families with incomes up to 350 percent of 

the federal poverty level (in Oregon and New Jersey, respectively).31

In four of six states, adults eligible for unemployment benefits might not 

have qualified for Medicaid because the average of their unemployment 

benefits would have been at least twice as much income as allowed for 

Medicaid eligibility. In the remaining two states—Ohio and Oregon—

adults that received the average unemployment benefit would have met 

the income eligibility requirements for Medicaid in those states (see 

table 9). 

Table 9: Receipt of Unemployment Benefits Often Made Parents Ineligible for 

Medicaid 

State 

Average monthly 

unemployment 

benefit 

(in dollars) 

Monthly Medicaid 

income eligibility 

level for parentsa

(in dollars)

Income within 

Medicaid eligibility 

levels 

Colorado 1,350 421 No 

New Jersey 1,418 443 No 

North Carolina 1,110 544 No 

Ohio 1,100 1,252 Yesb

Oregon 1,135 1,252cYesb

Utah 1,193 583dNo 

a

Medicaid income eligibility levels for parents are based on a family of three. 

b

To qualify for Medicaid, an individual would also need to meet asset test and other eligibility 

requirements. 

c

On October 15, 2002, Oregon received federal approval to expand Medicaid and SCHIP coverage 

for adults, including parents, up to 185 percent of the federal poverty level, or $2,316 per month for a 

family of three. The state plans to implement this expansion in increments beginning November 1, 

2002. 

d

In Utah, some adults with incomes above this eligibility level may qualify for Medicaid under another 

eligibility category that limits benefits to primary and preventive care. 

Sources: State and U.S. Bureau of Labor Statistics data, 2002. 

In Colorado, North Carolina, Oregon, and Utah, Medicaid coverage for 

unemployed adults was more restricted than it was for children because 

adults’ accumulated assets could have made them ineligible for coverage 

 31Upon implementation of Oregon’s expansion, which is expected to begin on February 1, 

2003, Medicaid and SCHIP coverage for children will increase from 170 percent of the 

federal poverty level to 185 percent of the federal poverty level. 
Page 25 GAO-03-191 Health Insurance for Unemployed Individuals 

even after their unemployment benefits run out. The amount of assets 

allowed and the types of assets included for eligibility purposes varied by 

state (see table 10). For purposes of determining whether individuals 

reached or exceeded their asset limit, North Carolina included the cash 

value of life insurance, checking and savings accounts, and other 

investments, but excluded the value of an applicant’s primary residence 

and vehicle. Utah required that families with children over age 6 have 

assets below $3,000 (with allowances for an additional $25 in assets for 

each additional family member) but excluded the value of one home and 

of one vehicle, up to $15,200. 

Table 10: Asset Exclusions for Parents under Medicaid in Six States 

State Asset limit Treatment of home Treatment of vehicle 

Colorado $2,000 Excluded Value of one vehicle 

excluded 

New Jersey None N/A N/A 

North Carolina $3,000 Excluded Value of one vehicle 

excluded per adult age 

18 or older 

Ohio None N/A N/A 

Oregon $2,000 Excluded Value of vehicles 

excluded 

Utah $2,000 -$3,000 Home occupied or being 

purchased by the 

applicant is excluded 

Value of one vehicle 

excluded (up to 

$15,200); OR $1,500 of 

the value of any vehicle 

Source: State information, October 2002. 

In contrast, most states nationwide have eliminated family asset tests in 

determining Medicaid and SCHIP eligibility for children. As of January 

2002, 44 states had eliminated family asset tests for all children in families 

with incomes at or below the poverty level and two other states dropped it 

for certain categories of children. Among the six states we reviewed, four 

states did not have asset tests for children in Medicaid, while five states 

did not have asset tests for children in SCHIP (see table 11). 
Page 26 GAO-03-191 Health Insurance for Unemployed Individuals 

Table 11: Medicaid and SCHIP Family Income Eligibility Limits and Asset Tests for 

Children’s Eligibility in Six States, 2002 

Family asset test applies to 

children’s eligibility for: 

State 

Upper income 

eligibility 

(as percentage of 

federal poverty level)a

Medicaid SCHIP 

Colorado 185 Yes No 

New Jersey 350 No No 

North Carolina 200 No No 

Ohio 200 No No 

Oregon 170bNo Yes 

Utah 200 Yesc No 

a

Medicaid eligibility can vary by the child’s age. For example, Colorado covers infants and children up 

to age 5 in families with incomes up to 133 percent of the federal poverty level and children age 6 to 

19 in families with incomes up to 100 percent of the federal poverty level. SCHIP eligibility would 

begin above these levels and end for children in families earning up to 185 percent of the federal 

poverty level. 

b

Oregon received federal approval to expand Medicaid and SCHIP coverage for children up to 185 

percent of the federal poverty level, which it plans to implement on February 1, 2003. 

c

State counts family assets for eligible children age 6 and older. 

Source: State information. 

Among unemployed adults, childless adults often had more difficulty 

qualifying for Medicaid than parents. The Medicaid programs in Colorado, 

North Carolina, and Ohio did not cover any nondisabled childless adults. 

In New Jersey, childless adults faced a lower Medicaid income eligibility 

level than parents did. Oregon and Utah covered a small number of 

childless adults, all of whom earned less than 150 percent of the federal 

poverty level (see table 12). 
Page 27 GAO-03-191 Health Insurance for Unemployed Individuals 

Table 12: Eligibility Levels for Childless Adults and Parents Applying for Medicaid, 

2002 

Income level below which coverage is granted 

(expressed as percentage of federal poverty level)a

 

State Childless adults Parents

Colorado No coverage 34

New Jersey 19 35b

North Carolina No coverage 43

Ohio No coverage 100

Oregon 100c 100c

Utah b 47b 

a

Income eligibility levels for childless adults are based on the individual, while the levels for parents 

are based on a family of three. 

b

Income eligibility does not reflect state’s coverage expansions under federally-approved waivers 

because eligibility was either no longer available to new applicants (New Jersey) or provided a more 

limited benefit with additional cost sharing (Utah). 

c

Oregon received federal approval to expand Medicaid and SCHIP coverage for adults up to 185 

percent of the federal poverty level. The state plans to implement this expansion in increments 

beginning November 1, 2002. 

Source: State information. 

Some states have received approval from the federal government to 

expand Medicaid and SCHIP coverage for parents and childless adults, 

including recently unemployed individuals. Of the states we reviewed, 

Utah recently received a section 1115 waiver to expand Medicaid coverage 

to certain parents and childless adults for a benefit package limited to 

primary care and preventive services. Utah’s waiver is estimated to cover 

an additional 16,000 parents with family incomes under 150 percent of the 

federal poverty level and 9,000 childless adults with incomes under 150 

percent of the federal poverty level. The expansion, implemented on July 

1, 2002, is funded by enrollment fees and cost sharing by participants and 

savings from increased cost sharing and new limits on some optional 

services, such as mental health services, vision screening and physical 

therapy, for certain groups of currently eligible adults. On September 27, 

2002, Colorado received approval to cover pregnant women with family 

income between 134 and 185 percent of the federal poverty level using 

SCHIP funds. Oregon also received approval on October 15, 2002, for a 

section 1115 waiver to expand insurance coverage for adults and children 

up to 185 percent of the federal poverty level using Medicaid and SCHIP 

funds. Oregon expects to cover an additional 60,000 individuals, but plans 

to phase in implementation of this expansion. On November 1, 2002, the 

States’ Expansions Can 

Offer Coverage for 

Unemployed Individuals, 

but Some Raise Fiscal and 

Legal Issues 
Page 28 GAO-03-191 Health Insurance for Unemployed Individuals 

state plans to expand its premium assistance program by paying between 

50 and 95 percent of premiums for eligible individuals with incomes up to 

185 percent of the federal poverty level, using both Medicaid and SCHIP 

funds.32 On February 1, 2003, Oregon plans to expand Medicaid and SCHIP 

eligibility to pregnant women and children with incomes up to 185 percent 

of the federal poverty level, and to other eligible individuals, including 

parents and childless adults, with incomes up to 110 percent of the federal 

poverty level. Further eligibility expansions may occur each quarter 

depending upon the availability of state funding. 

A state that has used a waiver to expand Medicaid and SCHIP coverage 

may be prompted by shortfalls in its budget to limit these expansions. Of 

the states we reviewed, in January 2001, New Jersey expanded Medicaid 

and SCHIP coverage for parents earning up to 200 percent of the federal 

poverty level. In June 2002, however, New Jersey suspended new 

enrollment of adults in this program, increased the premiums and reduced 

the benefits for those already covered under the expansion.33 New Jersey’s 

program had exceeded the state’s 3-year enrollment projection in 9 

months. 

Section 1115 waivers to expand insurance coverage under Medicaid and 

SCHIP can extend coverage to adults who would not otherwise qualify and 

who would have difficulty obtaining coverage elsewhere. However, we 

reported earlier that some waivers are inconsistent with the goals of the 

Medicaid and SCHIP programs and may compromise their fiscal integrity.34

For example, in approving Utah’s expansion, we concluded that HHS did 

 32Prior to the approved waiver, the Oregon premium assistance program used state-only 

funding that paid from 70 to 95 percent of the health insurance premiums for 

approximately 3,700 individuals with incomes below 170 percent of the federal poverty 

level. Due to budget constraints, however, new enrollment in the state-only premium 

assistance program was limited for 3 years, and had a waiting list of more than 29,000 

people. Under the waiver, the state is limiting enrollment due to the availability of state 

funding and estimates that an additional 25,000 people will be covered. 

33A recent study indicates that many states plan to decrease Medicaid spending in various 

ways, including limits on enrollment and retrenchment from program expansions. See 

Victoria Wachino, Kaiser Commission on Medicaid and the Uninsured, State Budgets 

Under Stress: How are States Planning to Reduce The Growth in Medicaid Costs? 

Preliminary Results based on the Kaiser Commission on Medicaid and the Uninsured 

50-State Survey (Washington, D.C.: July 30, 2002). 

34See U.S. General Accounting Office, Medicaid and SCHIP: Recent HHS Approvals of 

Demonstration Waiver Projects Raise Concerns, GAO-02-817 (Washington, D.C.: July 12, 

2002). 
Page 29 GAO-03-191 Health Insurance for Unemployed Individuals 

not adequately ensure that the waiver would be budget neutral as required 

for approval. We estimated that Utah’s waiver, if fully implemented, could 

cost the state and federal governments $59 million more than without the 

waiver. We found that the state’s projection of what it would have spent 

without the waiver inappropriately included the estimated cost of services 

for a new group of people who were not being covered under the state’s 

existing Medicaid program. Although we did not review Colorado and 

Oregon’s waiver applications in our earlier report, we raised a broader 

legal issue about states’ use of SCHIP funds to cover adults without 

children, which Oregon’s recently approved expansion will do. In our 

earlier report, we found that HHS had approved an Arizona waiver 

proposal that would, among other things, use unspent SCHIP funding to 

cover adults without children, despite SCHIP’s statutory objective to 

expand health care coverage to low-income children. In our view, HHS’s 

approval of the waiver to cover childless adults is not consistent with this 

objective, and is not authorized. Consequently, we recommended that the 

Secretary of Health and Human Services not approve any more waivers 

that would use SCHIP funds for childless adults.35 In addition, we 

suggested that the Congress amend the Social Security Act to specify that 

SCHIP funds are not available to provide health insurance for childless 

adults. 

Health insurance for the majority of Americans who rely on employerbased coverage could be threatened upon job loss. Federal and state laws 

provide some protections that are aimed at helping individuals maintain or 

obtain health insurance coverage in such circumstances. The protections 

offered, however, are not without limitations as individuals may find that 

bearing the full cost of the premiums—with no employer or state 

subsidies—may be beyond their financial means. While those who cannot 

afford health insurance may look to Medicaid or SCHIP for assistance, 

coverage for adults is hampered by limited income eligibility and other 

requirements, such as asset tests, that are likely to reduce the number of 

adults that can qualify for coverage. Some states have made recent efforts 

to use the flexibility available to them under Medicaid and SCHIP to 

expand their programs to help cover increased numbers of uninsured 

adults. Tighter budgets, however, are beginning to constrain some states’ 

 35HHS does not concur with our position that the spending of SCHIP funds is not 

authorized for childless adults. Subsequent to our recommendation, the Secretary 

approved New Mexico’s and Oregon’s waiver requests, on August 23, 2002, and October 15, 

2002, respectively. Both states intend to use SCHIP funds to cover childless adults. 

Concluding 

Observations 
Page 30 GAO-03-191 Health Insurance for Unemployed Individuals 

ability to sustain insurance coverage expansions initiated during stronger 

economic times. Thus, despite program expansions, coverage under 

Medicaid and SCHIP may not be available to unemployed adults, while 

other state coverage options may be too costly for these individuals. 

We provided a draft of this report for technical review to representatives 

of insurance departments, high-risk pools, and Medicaid programs in the 

six states we reviewed. Each of the states provided technical comments, 

which we incorporated as appropriate. 

In addition, in its comments, Utah disagreed with our statement—based on 

findings in an earlier report—that HHS did not adequately ensure that the 

state’s section 1115 waiver met the budget neutrality test. The state 

contends that its waiver is budget neutral and is consistent with longstanding HHS budget neutrality practices. Since 1995, we have expressed 

concern that HHS’s methods for assessing budget neutrality allow the 

inclusion of certain costs that inappropriately inflate cost estimates and 

result in the federal government being at risk to spend more than it would 

have had the waivers not been approved.36 We believe that continued use 

of these methods is inconsistent with the long-standing requirement for 

section 1115 waivers to be budget neutral and inappropriately places the 

federal government at risk of increased cost for the Medicaid and SCHIP 

programs. 

We did not obtain comments from HHS on this report because we did not 

evaluate HHS’ role or performance with respect to protections or 

programs that may benefit unemployed individuals. 

As agreed with your offices, unless you publicly announce its contents 

earlier, we will plan no further distribution of this report until 30 days after 

its date. At that time we will send copies to other interested congressional 

committees and other parties. We also will make copies available to others 

upon request. In addition, the report will be available at no charge on the 

GAO Web site at http:// www.gao.gov. 

 36For a more detailed discussion of this issue, see GAO-02-817, pages 19-20, 34-35. 

State Comments 
Page 31 GAO-03-191 Health Insurance for Unemployed Individuals 

If you or members of your staff have any questions regarding this report, 

please contact me on (202) 512-7114 or Carolyn Yocom on (202) 512-4931. 

Other major contributors to this report include JoAnn Martinez-Shriver, 

Michael Rose, and Michelle Rosenberg. 

Kathryn G. Allen 

Director, Health Care—Medicaid 

 and Private Health Insurance Issues 
Appendix I: HIPAA Group-to-Individual 

Portability in Six States 

Page 32 GAO-03-191 Health Insurance for Unemployed Individuals 

HIPAA provides guaranteed access to coverage—”portability” from group 

to individual coverage—to eligible individuals who, among other criteria, 

had at least 18 months of coverage without a break of more than 63 days. 

Recognizing that many states had already passed reforms that could be 

modified to meet or exceed these requirements, HIPAA gave states the 

flexibility to implement this provision by using either the federal fallback 

or an alternative mechanism. 

Under the federal fallback approach, insurers must offer eligible 

individuals guaranteed access to coverage in one of three ways. HIPAA 

specified that a carrier must offer eligible individuals (1) all of its 

individual market plans, (2) only its two most popular plans, or (3) two 

representative plans—a lower-level and a higher-level coverage option—

that are subject to a risk spreading or financial subsidization mechanism.1

According to a 2002 report, 11 states opted for the federal fallback 

approach.2

Under an alternative mechanism, states may design their own approach to 

guarantee coverage to eligible individuals as long as certain minimum 

requirements are met. Essentially, the approach chosen must ensure that 

eligible individuals have guaranteed access to coverage with a choice of at 

least two different coverage options. For example, one possible alternative 

mechanism is a state high-risk pool. 

As shown in table 13 only one of the six states we reviewed relied on the 

federal fallback approach to ensure group-to-individual portability. The 

remaining states either relied on their high-risk pool, another alternative 

mechanism, or both. 

 1

See U.S. General Accounting Office, Health Insurance Standards: New Federal Law 

Creates Challenges for Consumers, Insurers, Regulators, GAO/HEHS-98-67 (Washington, 

D.C.: Feb. 25, 1998). 

2

See Communicating for Agriculture & the Self-Employed, Comprehensive Health 

Insurance for High-Risk Individuals: A State-by-State Analysis. (Fergus Falls, Minn.: 

2002).

Appendix I: HIPAA Group-to-Individual 

Portability in Six States 
Appendix I: HIPAA Group-to-Individual 

Portability in Six States 

Page 33 GAO-03-191 Health Insurance for Unemployed Individuals 

Table 13: Approaches to Group-to-Individual Portability in Six States 

State alternative mechanism 

approach 

State 

Federal fallback 

approach High-risk pool Other 

Colorado X 

New Jersey Xa

North Carolina X 

Ohio Xb

Oregon X Xc

Utah X Xd

a

New Jersey provided group-to-individual portability through its individual market guaranteed issue 

law. 

b

Ohio used a combination of its guaranteed issue law and guaranteed conversion to provide group-toindividual portability. 

c

Oregon provided group-to-individual portability by requiring insurers to offer eligible individuals, who 

were previously covered by their group health plan, a choice between a low-cost and a prevailing 

benefit plan. Although similar to the federal fallback approach, the state characterized this as an 

alternative mechanism. 

d

Utah used its high-risk pool to provide group-to-individual portability for individuals eligible for HIPAA 

who were deemed uninsurable. HIPAA-eligible individuals who did not meet the high-risk pool’s 

health underwriting criteria were guaranteed coverage in the private individual market. 

Source: State information, October 2002. 
Related GAO Products 

Page 34 GAO-03-191 Health Insurance for Unemployed Individuals 

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 

Projects Raise Concerns, GAO-02-817. Washington, D.C.: July 12, 2002. 

Health Insurance: Characteristics and Trends in the Uninsured 

Population, GAO-01-507T. Washington, D.C.: March 13, 2001. 

Health Insurance Standards: New Federal Law Creates Challenges for 

Consumers, Insurers, Regulators, GAO/HEHS-98-67. Washington, D.C.: 

February 25, 1998. 

Medicaid Section 1115 Waivers: Flexible Approach to Approving 

Demonstrations Could Increase Federal Costs, GAO/HEHS-96-44. 

Washington, D.C.: November 8, 1995. 

Related GAO Products 

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