Health Insurance: States' Protections and Programs Benefit Some Unemployed Individuals
Published: 2002-10-25T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: 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 usually 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.

section_title: Letter
paragraphs: 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. 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. 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  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.  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.
subsections: section_title: Background
paragraphs: 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. 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. Also, for many individuals, the premiums for employment-based  insurance are lower than those in the private market for comparable  individual coverage.
subsections: section_title: Medicaid and SCHIP
paragraphs: 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.
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. 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. 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  received federal approval to expand their Medicaid programs to include  coverage for some of them.
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. 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.
section_title: Characteristics of Uninsured Individuals
paragraphs: 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  were also more likely to be uninsured. 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).
section_title: Changes in Employment
paragraphs: 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).
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).
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. 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. 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).
section_title: Federal Protections
paragraphs: Although many aspects of health insurance, including premiums, are  regulated at the state level, two federal laws— the Consolidated Omnibus  Budget Reconciliation Act of 1985 (COBRA) and the Health Insurance  Portability and Accountability Act of 1996 (HIPAA)—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. 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.
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. 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. 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.”
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. 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  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.
section_title: Various State Protections Offer Assistance, but Unemployed Individuals Generally Bear the Full Premium Cost
paragraphs: 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.
subsections: section_title: States’ Protections Generally Allow Unemployed Individuals to Purchase Insurance at Full Cost
paragraphs: 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;    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.
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  to budget constraints. However, in October 2002, Oregon received  approval to expand this program using federal funds.
subsections: section_title: State-Mandated Continuation Coverage
paragraphs: 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.
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.
section_title: State-Mandated Guaranteed Conversion
paragraphs: 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.
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.
section_title: State-Mandated Guaranteed Issue
paragraphs: 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. In New Jersey,  insurers were required to charge each applicant the same price for five  standard plans, but monthly premiums varied by insurer. 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. (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.
Three of the states we reviewed (Colorado, Oregon, and Utah) have  established high-risk pools that served individuals with acute and chronic  conditions. 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 high- risk 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.
section_title: States Lack Data on Current Numbers of Uninsured; Knowledge of Beneficiaries’ Use of State Protections Varies
paragraphs: 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.
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.
section_title: Eligibility for Medicaid and SCHIP Programs Is Limited for Unemployed Adults Despite Expansions in Some States
paragraphs: 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.
subsections: section_title: Unemployed Adults Are Less Likely Than Children to Qualify for Medicaid and SCHIP Coverage
paragraphs: 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. 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. In contrast, Medicaid and SCHIP coverage for children  ranged from those in families with incomes up to 170 percent of the  federal poverty level to those in families with incomes up to 350 percent of  the federal poverty level (in Oregon and New Jersey, respectively).
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).
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  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.
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).
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).
section_title: States’ Expansions Can Offer Coverage for Unemployed Individuals, but Some Raise Fiscal and Legal Issues
paragraphs: 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  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. 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. 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.  For example, in approving Utah’s expansion, we concluded that HHS did  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. 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.
section_title: Concluding Observations
paragraphs: Health insurance for the majority of Americans who rely on employer- based 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’  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.
section_title: State Comments
paragraphs: 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 long- standing 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. 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.
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.
section_title: Appendix I: HIPAA Group-to-Individual Portability in Six States
paragraphs: 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.  According to a 2002 report, 11 states opted for the federal fallback  approach.
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.
section_title: Related GAO Products
paragraphs: 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.