Health Coverage Tax Credit: Simplified and More Timely Enrollment Process Could Increase Participation
Published: 2004-09-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congress enacted the health coverage tax credit (HCTC) in 2002 for certain displaced workers receiving income support through the Trade Adjustment Assistance (TAA) program and for certain retirees receiving pensions from the Pension Benefit Guaranty Corporation (PBGC). The HCTC equals 65 percent of the cost of qualified health coverage, which individuals can receive in advance--the Internal Revenue Service (IRS) pays the credit to the qualifying health plan and the individual pays the remaining 35 percent--or by filing for the credit in their federal tax return. GAO was asked to review the implementation of the HCTC and examined, among other issues, how many individuals received it and factors influencing participation, and the type and cost of coverage they purchased. GAO obtained data from federal and state agencies and private health plans.
section_title: What GAO Found
paragraphs: For 2003, 19,410 individuals received about $37 million in benefits from IRS for the HCTC for themselves and dependents, with 12,594 (65 percent) claiming the credit on their tax returns rather than receiving it in advance. As of July 2004, about 13,200 individuals were enrolled for the advance HCTC, the majority of whom were PBGC beneficiaries. The number receiving the HCTC remains a small portion of the workers and retirees initially identified as potentially eligible. For example, some potentially eligible individuals may have other health coverage that would disqualify them from receiving the HCTC. Several additional factors may have limited participation to date. First, the advance credit only became available beginning in August 2003. Second, the enrollment process is fragmented and complex and requires individuals to meet tax, labor, and health coverage criteria before they can become eligible. Third, eligible individuals must pay the entire premium for about 3 to 6 months while completing eligibility and enrollment requirements and until IRS's first payment is made on behalf of these individuals. Fourth, the health coverage may not be affordable both in terms of an individual's ability to pay the entire premium amount while waiting to receive the advance HCTC and the ability to pay the 35 percent share once payment starts. Individuals can purchase one of several types of qualifying coverage for the HCTC: the coverage they had through their previous employer or insurance coverage options designated by states (primarily high-risk pools or arrangements with insurers). More than half of recipients chose coverage from their previous employer for the advance HCTC and another 40 percent of advance HCTC recipients enrolled in state-designated coverage options, which were available in 35 states and the District of Columbia as of July 2004. The average monthly premiums (representing both the individual and federal shares) for individuals receiving the advance HCTC were $480 for TAA recipients and $661 for PBGC beneficiaries as of April 2004. The tax credit resulted in an average monthly individual share of $168 for TAA recipients and $231 for PBGC beneficiaries. The premiums paid by advance credit recipients varied widely depending on the coverage purchased, including the type of health plan and the number of individuals covered. The cost of HCTC coverage also was affected by the premium-setting practices of qualified health plans.

section_title: Letter
paragraphs: The Trade Adjustment Assistance (TAA) Reform Act of 2002 created a  health coverage tax credit (HCTC) for certain workers who are eligible to  receive income support benefits under the TAA program because their  jobs were lost due to foreign competition and for certain retirees whose  pensions from a former employer were terminated and are now paid by  the Pension Benefit Guaranty Corporation (PBGC).1, 2 The HCTC equals   65 percent of the premium for qualified health coverage. Several types of  qualified health coverage were specified in the TAA Reform Act, including  federally guaranteed continuation of coverage from a former employer,  known as COBRA continuation coverage, and several state-designated  options such as state-sponsored high-risk pools and state arrangements  with private insurers.
Pub. L. No. 107-210, Division A, 116 Stat. 933, 935.
For this report, we refer to individuals who qualify for the HCTC because they lost  employment as a result of trade agreements as TAA recipients and those who qualify for  HCTC because they receive payments from PBGC as PBGC beneficiaries. PBGC  beneficiaries are individuals who receive payments from PBGC because their pension plan  was terminated. the HCTC at the time their premium is due each month, thereby lowering  the amount they have to pay out of pocket for health coverage. This  advance HCTC option is intended to help make health coverage more  affordable for eligible individuals, many of whom have recently lost their  primary source of income and health coverage along with their jobs.  Individuals also have the alternative of paying the entire premium to the  qualifying health plan and claiming the credit when they file their income  taxes for that year. The end-of-year HCTC was first available to eligible  individuals for December 2002, and the advance HCTC was first made  available in August 2003.
The combination of tax, labor, and health coverage requirements for the  HCTC necessitates coordination among multiple federal agencies  (including the Department of the Treasury, the Department of Labor, the  Department of Health and Human Services (HHS), and PBGC); state  agencies (including state workforce agencies, which are responsible for  administering training and financial assistance benefits for trade-displaced  workers, and state departments of insurance); and private health plans. At  the federal level, an HCTC program office within the Treasury’s Internal  Revenue Service (IRS) administers the HCTC with assistance from private  contractors. In addition, the TAA Reform Act allowed states to apply to  Labor for national emergency grants to help implement the HCTC and  created new grants from HHS for states to establish and operate state  high-risk pools.
You asked us to examine the early implementation of the HCTC,  particularly during the first year of the advance HCTC option. To do so, we  answered the following questions.  1.  Of those eligible to receive the HCTC, how many received it and what  factors have influenced participation in the HCTC?  2.  Which types of qualified coverage have HCTC recipients purchased,  how did benefits differ among these types of coverage, and how much  did this coverage cost?  3.  What was IRS’s experience in implementing the HCTC and how were  program responsibilities shared between federal and private sector  entities?  4.  How many states received national emergency grants and high-risk  pool grants and why did some not apply for funds?
For this report, the District of Columbia is included in our discussion of states, unless  otherwise noted.
We conducted a Web-based survey of state workforce agencies in every state and Puerto  Rico in 2004. The District of Columbia was not included in this survey. We received an  overall response rate of 98 percent; however, the response rates for specific questions in  the survey varied. Additional data from this survey are included in GAO, Trade Adjustment  Assistance: Reforms Have Accelerated Training Enrollment, but Implementation  Challenges Remain, GAO-04-1012 (Washington, D.C.: Sept. 22, 2004). geographic regions of the country. From IRS, we obtained data on which  types of plans states had designated as state-qualified coverage options,  which types of coverage advance HCTC enrollees purchased, and the cost  of coverage purchased by advance HCTC enrollees. IRS provided these  data on a monthly basis from August 2003 through June 2004 and on a  cumulative basis from August 2003 through April 2004. We obtained  information about the benefits available to HCTC recipients from officials  at qualified health plans in the eight states we reviewed, COBRA  administrators, and the Henry J. Kaiser Family Foundation and the Health  Research and Educational Trust’s national survey of employers’ health  benefits. Data on demographic characteristics, types of coverage  purchased, premiums paid for coverage, and information on why some  potentially eligible individuals did not claim the HCTC were not available  for end-of-year HCTC recipients in 2002 or 2003. We obtained information  about IRS’s implementation of the HCTC from officials at IRS, Labor, HHS,  and PBGC; a survey we conducted of officials in each state workforce  agency; state workforce, department of insurance, and 10 health plan  officials in the eight states we reviewed; and COBRA administrators,  representatives from the Blue Cross and Blue Shield Association, and  representatives from the United Steelworkers of America, which had  members eligible to receive the HCTC. We also interviewed officials from  Accenture, the primary contractor responsible for implementing the  advance HCTC, and reviewed contract documents. Labor provided us with  information on the national emergency grant awards, and HHS’s Centers  for Medicare & Medicaid Services (CMS) provided us with information on  high-risk pool grant awards. We obtained additional information about  these grants and why states did not apply for them from our survey of  state workforce agencies, officials in the states we reviewed, and officials  from the HCTC program office and CMS. We obtained information from  IRS officials regarding the data checks and edits they perform on their  data and any notable limitations, and determined that the data used in this  report were sufficiently reliable for our purposes. We conducted our work  from December 2003 through September 2004 in accordance with  generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: The TAA Reform Act established the HCTC to help certain individuals pay  for health coverage by establishing a tax credit for 65 percent of the  premium cost for qualified coverage. Individuals receive the HCTC in two  ways—either in advance on a monthly basis or after the end of the year  when they file their federal income taxes. Individuals are not required to  itemize deductions or to owe federal income taxes in order to receive the  HCTC. IRS provides the end-of-year HCTC to the individual, while tax  credits claimed in advance are paid to the health plan in the form of a  premium payment. For the advance credit, the HCTC program remits  payments directly to the health plan; however, the individual must pay the  full premium out of pocket until enrollment is complete. Individuals  receiving the HCTC in advance may claim the credit at the end of the year  for any months in which they were eligible for the HCTC but did not  receive it in advance.
subsections: section_title: Eligibility for the HCTC
paragraphs: Three groups of individuals may be eligible to receive the HCTC for  themselves and their qualified family members:  1.  TAA recipients. These are individuals who lost their jobs due to  imports from or a shift in production to certain foreign countries. For  workers to be eligible for TAA, Labor must certify petitions, filed by or  on behalf of an employee group, indicating that the workers lost  employment as a result of foreign competition. Once Labor has  certified the petition, state workforce agencies determine individual  worker eligibility for TAA benefits. To be eligible for the HCTC, TAA- eligible workers must first be eligible for a trade readjustment  allowance, which extends income support after unemployment  insurance is exhausted, and as a condition of receiving this income  support must enroll in training to develop job skills for reemployment,  or must receive a waiver from training. Because the trade  readjustment allowance is not available to eligible workers until 60 or  more days after the employee group files a petition to receive TAA  certification from Labor, trade-affected workers cannot become  eligible for the HCTC until this time.  2.  Alternative trade adjustment assistance (ATAA) recipients.  Individuals who qualify for this assistance have lost their jobs as a  result of trade-related layoffs and found new jobs within 26 weeks at  lower pay and earn $50,000 or less in their new jobs. The ATAA  program, initiated in August 2003, provides certain workers who are  aged 50 and over and lacking transferable job skills with a wage  subsidy to help offset this salary reduction. Labor must certify that an  employee group lost employment as a result of foreign competition  and that ATAA applicants are included in this group. State workforce  agencies are responsible for determining an individual’s eligibility for  ATAA benefits.  3.  PBGC beneficiaries. These individuals receive payments from PBGC  because their pension plan was terminated when their former  employer went bankrupt or experienced other severe financial  difficulties. To be eligible for the HCTC, PBGC beneficiaries must be  aged 55 or older and be either currently receiving benefits or have  received a lump sum payment from PBGC after August 5, 2002. Unlike  TAA-eligible individuals, PBGC beneficiaries do not have to be  associated with trade-affected industries in order to receive the HCTC.
In order to be eligible for the HCTC, individuals in these three groups must  also be enrolled in qualified health coverage and meet certain other  criteria. These criteria include that the individual cannot be eligible to be  claimed as a dependent on someone else’s tax return; cannot be  imprisoned on the first day of the month he or she seeks to receive the  HCTC; and cannot be enrolled in other, nonqualified health coverage, such  as Medicare or health coverage through the Department of Defense health  system.
section_title: HCTC Qualified Health Coverage
paragraphs: The TAA Reform Act specifies 10 types of qualifying coverage that are  eligible for the HCTC, including 3 automatic options that do not require  any action on the part of the states and 7 options that only meet the  definition of qualified health plans if a state elects to make them available  and ensures that they meet certain criteria.
subsections: section_title: Automatically Qualified Coverage Options
paragraphs: The TAA Reform Act designates the following three options that are  automatically qualified as coverage eligible for the HCTC:    COBRA continuation plans. An eligible individual may use the HCTC for  COBRA coverage. Under COBRA, employers with 20 or more employees  must offer 18 to 36 months of continued health coverage to former  employees and their dependents who lose health coverage under certain  circumstances, such as when an employee is terminated or retires.  Generally, health plans may charge individuals purchasing COBRA  continuation coverage no more than 102 percent of the total premium.
Spousal coverage. An eligible individual may claim the end-of-year HCTC  for group market coverage obtained through a spouse’s employer,  provided the employer contributed less than 50 percent toward the cost of  coverage. The advance HCTC cannot be used to purchase coverage  through a spouse’s employer.
Individual market plans. An eligible individual may use the HCTC for  individually purchased health coverage, provided that the coverage was  purchased at least 30 days prior to the separation from employment that  resulted in the individual becoming eligible to receive TAA benefits or  PBGC pension payments.
section_title: State-Qualified Coverage Options
paragraphs: In addition to the three automatic options, the TAA Reform Act allows  states to designate seven other coverage alternatives for HCTC recipients.  Most states have chosen to designate one or more of the following three  state-qualified options:    Arrangements with insurers or other plan administrators. States  may make arrangements with issuers of health insurance coverage (that is,  health insurers), group health plans, employers, or other plan  administrators to provide coverage eligible for the HCTC. States electing  to provide state-qualified HCTC coverage through an arrangement with a  health insurer may designate insurers offering either individual market or  group health plans.
State high-risk pools. Some states have established high-risk pools to  provide health coverage to individuals unable to purchase coverage  elsewhere, typically because of a preexisting health condition. To qualify  for the HCTC, high-risk pools must (1) cover, without preexisting  condition limits, individuals leaving group coverage who are eligible for  guaranteed coverage under the Health Insurance Portability and  Accountability Act of 1996 (HIPAA); and (2) offer premium rates and  covered benefits consistent with the National Association of Insurance  Commissioners Model Health Plan for Uninsurable Individuals Act in  effect as of August 21, 1996.
State-based continuation coverage, or mini-COBRA. Because the  COBRA provisions only apply to plans maintained by employers with 20 or  more workers, some states have enacted so-called mini-COBRA laws  requiring insurers providing coverage to plans maintained by employers  with fewer than 20 workers to offer continuation coverage to such plans.
The other four types of coverage that states can designate as qualified  plans are (1) a health coverage program for state employees, (2) a state- based health coverage program comparable to that offered for state  employees, (3) an arrangement with a private-sector health care coverage  purchasing pool (that is, a cooperative of employers or other groups or  individuals that negotiate with one or more health plans), and (4) a state- operated health plan that does not receive any federal financial  participation (thereby excluding Medicaid and the State Children’s Health  Insurance Program).
These seven state-qualified coverage options must provide qualified  individuals—that is, individuals who have at least 3 months of prior  creditable coverage at the time they seek to enroll in a state-qualified  HCTC plan—four consumer protections. These consumer protections are  (1) guaranteed issue, whereby insurers must guarantee enrollment and  must permit the individual to remain enrolled as long as he or she pays  premiums; (2) the prohibition of preexisting condition restrictions;   (3) nondiscriminatory premiums, such that the premiums charged to  HCTC enrollees may not be greater than the premiums for similar  individuals not receiving the HCTC; and (4) benefits that are substantially  the same as coverage provided to similar individuals who are not receiving  the HCTC. While the fourth consumer protection requires the benefits to  be similar to coverage offered to non-HCTC individuals, it does not specify  what benefits must be included.
section_title: State Grants
paragraphs: The TAA Reform Act authorized states to use national emergency grants to  help with costs related to the implementation of the HCTC and established  grants to promote high-risk pools.
National emergency grants. To help with HCTC expenses, states can  apply for two types of national emergency grants: bridge grants and  infrastructure grants. Bridge grants could be used to pay for up to 65  percent of the cost of health coverage for eligible individuals until the  federal advance HCTC became available in August 2003. After August  2003, states were permitted to use remaining bridge grant funds to assist  eligible individuals with paying their premiums during the HCTC  enrollment process. Infrastructure grants were intended to assist states  with start-up and administrative costs related to the HCTC.
High-risk pool grants. To promote high-risk pools, states were offered  new grants, called seed grants, to provide funds for the establishment of  qualified high-risk pools, and operating grants, to reimburse states for up  to 50 percent of losses incurred by high-risk pools meeting certain  criteria. Seed grants also can be used to convert an existing high-risk pool  to a qualified high-risk pool—that is, one that meets the requirements  contained in the Public Health Service Act for individuals eligible for  protections under HIPAA.
section_title: Federal, State, and Private Entity Roles in Implementing the HCTC
paragraphs: Although IRS is responsible for administering the HCTC program, three  federal departments—Treasury, Labor, and HHS—share responsibility for  implementing the HCTC and grants to states contained in the TAA Reform  Act. (See table 1.) To implement and administer the HCTC, Congress  appropriated to IRS $70 million for fiscal year 2003, to remain available  through fiscal year 2004, and $35 million for fiscal year 2004, to remain  available through fiscal year 2005. Separate funding was provided for  HCTC payments. In addition, PBGC—a federal corporation created by the  Employee Retirement Income Security Act of 1974—is responsible for  submitting, on a monthly basis, the names of PBGC beneficiaries  potentially eligible for the HCTC to the HCTC program office. State  responsibilities include identifying TAA individuals who are potentially  eligible for the HCTC and, if the state so chooses, making state-qualified  health coverage options available.
section_title: Process for Enrolling for Advance HCTC and Claiming End-of-Year HCTC
paragraphs: Enrolling for the advance HCTC involves multiple entities, including  federal agencies, a state workforce agency, and health plans. Potential  eligibility begins with a qualifying event—either a worker loses  employment as a result of foreign competition or a retiree’s pension plan is  terminated. These individuals must then undergo an eligibility  determination process for TAA or have PBGC assume payment of their  pension.
The enrollment process for HCTC can begin once a state sends to the  HCTC program office the names of individuals receiving or eligible for  income support through the trade readjustment allowance or PBGC sends  a list of names of beneficiaries aged 55 or older. The HCTC program office  mails an HCTC package to each of these individuals. Individuals may  enroll for the advance HCTC if they meet the eligibility criteria, which  include purchasing qualified health coverage. Once an individual  successfully enrolls for the advance HCTC, the HCTC program office  sends an invoice for the individual’s 35 percent share of the premium, and,  when this payment is received, the remaining 65 percent is added and the  full premium amount is forwarded to the participating health plan. Figure  1 provides an overview of the steps required for TAA recipients and PBGC  beneficiaries to enroll for the advance HCTC and to have payments made  to the qualifying health plan in which they enroll.
End-of-year HCTC recipients must complete many, but not all, of the steps  outlined above for advance HCTC enrollees. They must experience a  qualifying event, be determined eligible for the trade readjustment  allowance or PBGC payments, have their names sent to the HCTC program  office by a state workforce agency or PBGC, and have qualified health  coverage. Instead of enrolling with the HCTC program office, however,  individuals claiming the end-of-year HCTC must submit required  documents, which include proof of premium payment and a form designed  for the HCTC, to the IRS along with their federal tax return. In addition,  individuals who receive the advance HCTC may also claim the end-of-year  HCTC for the months that they did not receive the advance HCTC,  including months prior to August 2003, when the advance credit was first  made available, and the months during the enrollment process before  advance payments are made to their health plans.
section_title: More Than 19,000 Individuals Received HCTC for 2003, but Participation May Have Been Limited by Several Factors
paragraphs: For 2003, 19,410 individuals received about $37 million in payments for  themselves and dependents for the advance and end-of-year HCTC, the  majority by filing for the credit on their end-of-year tax return. For July  2004, enrollment for the advance HCTC was about 13,200, about 60  percent of whom were PBGC beneficiaries. An HCTC program office  survey in October 2003 (early in the implementation of the advance HCTC)  indicated that advance HCTC enrollees were, on average, older and had  lower incomes and educational attainment than nonenrollees, but both  groups reported similar health status. Comparable data for end-of-year  HCTC recipients and nonrecipients were not available. According to  officials from states, qualified health plans, and a union, several factors  may have limited the participation in the advance and end-of-year HCTC to  date. These factors include the newness of the program, the fragmentation  and complexity of the TAA certification and HCTC eligibility  determination and enrollment processes, the length of time—typically 3 to  6 months—that the individual must pay the full premium while  establishing eligibility for and enrolling in the advance payment, and the  ongoing cost of the individual’s share of the premium once the advance  HCTC payments have begun.
subsections: section_title: More Than 19,000 Individuals Received HCTC Benefits Totaling $37 Million in 2003
paragraphs: For 2003, about $37 million was paid on behalf of 19,410 HCTC recipients,  most of whom (12,594 individuals) claimed the HCTC solely on their end- of-year tax return. Many of these individuals may have received the HCTC  to pay for qualified health insurance covering dependents as well as  themselves, but data were not available on the number of dependents  covered by the end-of-year HCTC. The advance HCTC became available in  August 2003, and 3,696 individuals received both the advance HCTC—for  the months beginning on or after August—and the end-of-year HCTC—for  the months they paid 100 percent of their insurance premium. Another  3,120 individuals received the HCTC only in the form of an advance  payment. (See fig. 2.) Of the $37 million paid, about $23.8 million was  paid on behalf of those who filed solely for the end-of-year HCTC, $2.8  million for those receiving the advance HCTC only, and $10.7 million for  those who claimed both forms of the credit. According to the HCTC  program office, for 2003, about 24,000 taxpayers filed claims for the end- of-year HCTC, and about 8,000 of these claims were denied. Some of the  individuals whose claims for the end-of-year credit were denied were not  on the list of potentially eligible individuals prepared by the state  workforce agencies and PBGC. In addition, some of those denied were age  65 or older.
section_title: Enrollment for Advance HCTC Was 13,200 in the Month of July 2004
paragraphs: Enrollment for the advance HCTC increased from about 4,000 individuals  at the start of the program to about 13,200 individuals in July 2004. (See  table 2.) In this month, roughly 40 percent of enrollees were TAA  recipients, while the remaining 60 percent were PBGC beneficiaries.  Individuals also used the advance HCTC to cover their qualified family  members. In May 2004, approximately 12,900 individuals were enrolled to  receive the advance HCTC for themselves and about 7,800 family  members.
Nationwide, as of July 2004, Pennsylvania had the highest number of  individuals enrolled for the advance HCTC (2,265), followed by North  Carolina (1,636) and Ohio (1,090). Most individuals enrolled for the  advance HCTC were clustered in nine states—Illinois, Indiana, Maryland,  Michigan, North Carolina, Ohio, Pennsylvania, Virginia, and West Virginia.  These nine states accounted for two-thirds of all individuals enrolled for  the advance HCTC, although fewer than half of all potentially eligible  individuals resided in these states. Several of these states recently  experienced large trade-related layoffs at steel and textile companies. For  example, Pillowtex, a household textile manufacturer headquartered in  North Carolina, closed manufacturing and distribution facilities in North  Carolina and Virginia and terminated more than 4,500 employees in July  2003. In April 2003, PBGC assumed pension plan payments for 95,000  workers and retirees from the Pennsylvania-headquartered Bethlehem  Steel Corporation. (See app. I for the number of individuals enrolled for  the advance HCTC by state.)
Determining the actual rate of participation in the HCTC is difficult  because reliable data on the total number of individuals actually eligible  for the HCTC are not available. States and PBGC are responsible for  identifying and reporting individuals who are eligible for TAA and PBGC  benefits, while the responsibility for assessing the health coverage and tax  eligibility HCTC criteria lies with the HCTC program office. Therefore,  individuals identified by states and PBGC are considered only potentially  eligible for the HCTC because IRS also needs to determine that they meet  health coverage and tax criteria before receiving the HCTC. Some of the  individuals identified by states and PBGC as potentially eligible may have  other health coverage that would disqualify them from receiving the  HCTC. For example, the October 2003 HCTC program office survey found  that about half of those identified as TAA recipients or PBGC  beneficiaries, but who were not enrolled for the advance HCTC, were in  fact ineligible because they had other coverage, such as Medicare or  through a spouse’s employer. Similarly, in the HCTC program office’s  February 2004 survey, many respondents reported multiple reasons that  made them ineligible for the HCTC, including being claimed as a  dependent on someone else’s tax return, not meeting the age eligibility  criteria, or having other health coverage from sources such as the military  or the Federal Employees Health Benefits Program.
section_title: Advance HCTC Enrollees Were Older and Had Lower Income Than Nonenrollees
paragraphs: Based on an HCTC program office survey of 1,200 respondents conducted  in October 2003, advance HCTC enrollees were, on average, older, were  less likely to have children, and had lower income than potentially eligible  nonenrollees. Both groups, however, reported similar health status.  Specifically, advance HCTC enrollees were an average of 4 years older  than nonenrollees, had 12 percent lower household pretax income, and  lower educational attainment than nonenrollees. There was no statistically  significant difference in self-reported health status between enrollees and  nonenrollees in the advance HCTC program. Seventy-four percent or more  of enrollees and nonenrollees reported being in good health, while 3  percent of enrollees and 6 percent of nonenrollees rated their health as  poor. (See table 3.) Demographic data for those who received the end-of- year HCTC were not available at the time of our analysis.
section_title: Several Factors May Limit the Number of Individuals Who Receive the HCTC
paragraphs: According to officials we interviewed from states, participating qualified  health plans, and a union representing affected workers, the number of  individuals receiving the HCTC was lower than expected. We identified  several factors that may help explain the limited number of individuals  receiving the advance and end-of-year HCTC to date. In addition to the  newness of the advance payment option, these factors included the  fragmentation and complexity of the eligibility and enrollment process, the  gap in time before the advance payments are available, and the  affordability of the individual’s share of the premiums.
State workforce agency and health plan officials reported that the process  for trade-displaced workers to become eligible and enroll for the HCTC  was fragmented and complex. Between the time workers lost employment  and the time they enrolled for the advance HCTC, they interacted with two  different federal agencies (Labor and IRS), their state’s workforce agency,  and a health plan. Each entity performed a discrete part of the eligibility  determination and enrollment process, without any single entity being  responsible for overall coordination. In four of the eight states we  reviewed, workforce officials reported that displaced workers seeking  help with the advance HCTC often had to make multiple calls to different  federal and state agencies. For example, a state workforce agency official  reported that displaced workers who called the HCTC program office  about the advance HCTC—prior to their name being sent from the state— were referred to Labor, which in turn referred them back to the state  workforce agency. An official from another state workforce agency  reported that the state workforce agency does not deal with health  coverage issues, so displaced workers who called with questions or  difficulties about their health plan were referred to the HCTC program  office or the health plan. State and union officials reported that this level  of fragmentation could be difficult to navigate, especially for individuals  with limited education or those who worked in large companies and were  accustomed to centrally coordinated benefits administration.
Currently, individuals must navigate the eligibility and enrollment process  largely on their own. State and health plan officials suggested developing a  coordinated outreach strategy to help individuals who have difficulty with  the advance HCTC enrollment process. For example, officials reported  that HCTC information sessions attended by representatives from the  PBGC, state workforce agencies, HCTC program, and qualified health  plans were held in some states that had experienced large layoffs.  According to officials, these information sessions helped bring all the key  players together in one location and enabled individuals to walk from one  station to the next and complete the enrollment process on the same day,  if they chose to.
State officials reported that the requirement that individuals first qualify  for the trade readjustment allowance—income support available under the  TAA program after unemployment insurance is exhausted—added to the  time and complexity of the advance HCTC eligibility and enrollment  process and could limit participation. Individuals cannot qualify for the  trade readjustment allowance until at least 60 days after the petition for  TAA certification has been filed with Labor. In addition, in order to qualify  for this benefit, individuals must be in training or have a waiver from  training, which must be recertified monthly by the state workforce  agency. State officials said that removing the requirement to first qualify  for the trade readjustment allowance would expedite the enrollment  process and could enable additional dislocated workers to receive the  advance HCTC.
Another factor that complicates and could limit participation in the  advance HCTC is the time required to enroll for the advance HCTC. In our  survey of state workforce agencies conducted in March 2004, 30 states  responded that TAA recipients had difficulty receiving the HCTC, and 17  of these 30 states reported that it took too long for eligible individuals to  receive the advance HCTC because of the way the enrollment process was  structured. The multiagency, multistep process for eligibility  determination and enrollment resulted in a significant gap between the  time individuals lost employment or their retirement plan was terminated  and the time they began receiving the advance HCTC. It typically took  from 4 to 6 months for newly displaced trade-affected workers to become  eligible for and receive the first advance payment. (See fig. 3.) For new  PBGC beneficiaries, the time required to become eligible for and receive  the first advance payment typically was 3 to 6 months.
The elapsed time in becoming eligible and enrolling for the advance HCTC  also meant that in some instances individuals potentially eligible for the  HCTC were required to make certain decisions that would affect future  health coverage for themselves or their spouse before they knew whether  they would be eligible to receive the advance HCTC. For example, some  displaced workers are offered the option of paying for COBRA coverage at  the time of separation from their employers, and individuals who enroll in  COBRA may use the advance HCTC to pay 65 percent of their COBRA  premiums once they have completed the advance HCTC enrollment  process, which typically can take 3 to 6 months. Eligible individuals who  decline COBRA coverage—such as for affordability concerns—or do not  have COBRA as an option and become uninsured for more than 63 days  risk losing guaranteed access to state-qualified health coverage and other  consumer protections. Because it typically takes 3 to 6 months after  losing employment before beginning to receive the advance HCTC,  maintaining coverage for this 63-day period can be very expensive for  displaced workers, and some may opt not to pay for this coverage in part  because they have difficulty affording it. In our survey of state workforce  agencies, 20 of the 30 states that said that TAA recipients had difficulty  receiving the HCTC reported that breaks in coverage of 63 days or more  are causing individuals to lose access to one or more consumer  protections, such as guaranteed access to coverage or no preexisting  condition exclusions. However, officials we interviewed from five state- qualified HCTC health plans reported that they have voluntarily extended  one or more consumer protections to individuals with more than a 63-day  break in coverage, for example offering all HCTC applicants guaranteed  access to coverage and in some cases waiving preexisting condition  exclusions for enrollees. Some of these health plan officials indicated that  the decision to offer all HCTC applicants the same consumer protections  was made for ease of administration, and this practice may be revoked in  the future at the discretion of the plan.
State, health plan, and union officials also expressed concern about gaps  in HCTC program eligibility rules that can affect the spouses and other  dependents of PBGC beneficiaries who enroll in Medicare. Specifically,  when a PBGC beneficiary enrolls in Medicare, the beneficiary loses  eligibility for the HCTC. According to current eligibility rules, the spouses  and other dependents of these individuals also lose eligibility for the HCTC  even if they are not yet eligible for Medicare. A union official reported that  when some PBGC beneficiaries attended an HCTC information session  and became aware of this rule, they expressed reservations about  enrolling in the HCTC, stating that they needed more time to think about  whether to apply.
According to state workforce officials, health plan officials, and union  representatives we contacted, the affordability of qualified HCTC coverage  was another factor affecting participation rates. HCTC-eligible individuals  have either lost employment, often involving a reduction in income, or  retired and are receiving a fixed pension from PBGC. Research indicates  that as premiums consume an increasing share of income, participation  rates decline. For example, one study found that, among populations with  incomes up to 300 percent of the federal poverty level, more than half of  the target population would participate when premiums represent 1  percent of income, but only one-sixth would participate when premiums  represent 5 percent of income.
The affordability of qualified health coverage options can be problematic  even with the HCTC. During the 1- to 3-month period before the health  plan receives the first premium payment from the HCTC program, HCTC  enrollees are required to pay 100 percent of the premium out of pocket,  which for a single person would represent 36 percent and for two persons  would represent 72 percent of the average monthly unemployment  insurance benefit of about $1,128. The ongoing 35 percent share of the  average HCTC premiums in mid-2004 for a health plan covering a single  individual and a plan covering a single individual and one other family  member would have required 13 percent and 25 percent, respectively, of  the average monthly unemployment insurance benefit. In addition to these  premium costs, HCTC enrollees must pay any deductibles, coinsurance, or  copayments that are required by their health plan.
In our survey of state workforce agencies, 24 of 30 states reporting that  TAA recipients had difficulty receiving the HCTC said that the ability to  pay premiums while waiting to receive the advance HCTC was a factor  contributing to this difficulty. In addition, 22 of the 30 states indicated that  the lack of affordable health coverage was a reason individuals may be  having difficulty participating in HCTC. The state workforce, health plan,  and union officials we interviewed reported that, even with a 65 percent  subsidy, the remaining 35 percent share might cost too much to be  affordable for many displaced workers and retirees.
section_title: Majority of Advance HCTC Enrollees Purchased COBRA; Benefits and Costs Varied with Type of Qualified Coverage
paragraphs: From August 2003 through April 2004, 60 percent of advance HCTC  enrollees obtained coverage through automatically qualified health plans,  primarily COBRA, and 40 percent of individuals receiving the advance  HCTC purchased coverage through a state-qualified plan. Comparable data  on the coverage purchased by end-of-year recipients were not available.  More than two-thirds of the states designated state-qualified plans, with  most states choosing to provide coverage through arrangements with  insurers or high-risk pools. The types of benefits available for purchase  with the HCTC varied both within and across the different automatic and  state-qualified coverage options. For example, COBRA plans, which were  a continuation of employer-sponsored group market coverage, tended to  offer lower deductibles than state-qualified high-risk pools and more  comprehensive benefits than the coverage provided through arrangements  with insurers, most of which were individual market plans. The cost of  HCTC coverage for advance credit enrollees varied widely depending on  the number of people covered, the type of coverage purchased, and  whether the HCTC enrollee was a TAA recipient or a PBGC beneficiary.  The cost of HCTC coverage was also affected by the different ways in  which premiums are set in the group and individual market.
subsections: section_title: Majority of Advance HCTC Enrollees Purchased Automatically Qualified Coverage, and 40 Percent Enrolled in State-Qualified Plans
paragraphs: Cumulatively, from the time the advance credit became available in August  2003 through April 2004, the majority (60 percent) of advance HCTC  enrollees obtained coverage through one of the automatically qualified  coverage options specified in the TAA Reform Act. Most HCTC enrollees  (56 percent) used the advance HCTC to purchase COBRA coverage, while  4 percent remained enrolled in the individual market plans they held 30  days prior to the separation from employment that resulted in their  becoming eligible for TAA benefits or PBGC payments (see fig. 4).
Nationwide, about two-thirds of TAA recipients enrolled for the advance  HCTC purchased COBRA coverage, whereas about one-half of PBGC  beneficiaries enrolled for the advance HCTC selected COBRA plans and  one-half selected state-qualified plans. Only a small percentage of advance  HCTC enrollees of either type purchased automatically qualified individual  market coverage. (See fig. 5.)
section_title: More than Two-Thirds of States Designated State- Qualified HCTC Plans
paragraphs: As of July 2004, 36 states had designated state-qualified HCTC coverage  options, and about 84 percent of all individuals identified as potentially  eligible to receive the HCTC lived in these states. Most states providing  state-qualified coverage did so through arrangements with one or more  insurers (18 states) or high-risk pools (17 states). Three states (Indiana,  Maryland, and Texas) designated both their high-risk pool and an  arrangement with an insurer as state-qualified HCTC plans. Thirteen states  designated mini-COBRA plans, and in 4 of these 13 states (Kentucky,  Missouri, New Jersey, and Wisconsin) mini-COBRA plans were the only  state-qualified coverage option available. Federal officials reported that  few individuals eligible to receive the HCTC had access to mini-COBRA  coverage because the number of TAA recipients and PBGC beneficiaries  whose former employer had fewer than 20 employees—thereby making  them eligible for mini-COBRA coverage—was estimated to be very small.  (See app. II for a list of state-qualified HCTC coverage options by state.)
According to the HCTC program office, 15 states—whose combined  population represented less than one-fifth of all individuals potentially  eligible to receive the HCTC—had yet to make a state-qualified HCTC plan  available as of July 2004. Three of these states—Arizona, Idaho, and  Washington—have designated state-qualified plans, but these plans were  not open to enrollment as of July 2004. Among states that have not  designated a state-qualified plan, California had the largest number of  potentially eligible individuals. State workforce and insurance department  officials in California reported that because no health plans in the state  had agreed to participate in the HCTC program, potentially eligible  individuals without access to COBRA or another automatically qualified  coverage option were unable to use the HCTC because they could not  purchase qualified coverage.
In the 15 states that did not make a state-qualified HCTC plan available,  some potentially eligible individuals may not have been able to use the  HCTC to purchase automatically qualified coverage. Although the extent  to which this has occurred is unknown, there are several reasons why  potentially eligible individuals in these states may be unable to receive the  HCTC. First, if a former employer discontinued its employee health  coverage, individuals potentially eligible for the HCTC would not likely  have access to a COBRA plan. According to a Commonwealth Fund study,  federal officials estimate that between 40 percent and 60 percent of  individuals eligible to receive the HCTC likely do not have access to  COBRA coverage. In addition, individuals who have COBRA coverage  and are eligible to receive the HCTC for longer than the 18 to 36 months  that COBRA is available will also need to enroll in another form of  qualified coverage when their COBRA benefits expire in order to maintain  the HCTC. Second, individuals with coverage through their spouses’  employer may not qualify for the HCTC because many companies that  offer health coverage contribute more than 50 percent toward the cost of  their workers’ health coverage premium—both for the cost of coverage for  an individual worker and for the cost of family coverage. In 2003, for  example, the average percentage of total premiums paid by employers for  family coverage was 73 percent. Third, HCTC program office officials  reported that only a small percentage of individuals were likely to have  purchased coverage in the individual market at least 30 days prior to the  separation from employment that resulted in their becoming eligible for  TAA benefits or PBGC payments. While these officials could not provide a  precise estimate, a national survey reported that fewer than 6 percent of  all working Americans purchased individual market coverage in 2002.
section_title: Benefits Varied Across and Within HCTC Coverage Options
paragraphs: The benefits offered to HCTC recipients varied across coverage types and  from plan to plan. In the seven states we reviewed that designated state- qualified health plans, we found that COBRA coverage generally included  lower deductibles than high-risk pools and offered more comprehensive  benefits than arrangements with insurers. When health plans offered a  choice among benefit packages or deductible amounts, HCTC recipients  typically selected more comprehensive benefits and lower deductibles.
COBRA benefits are typically identical to the benefits provided to working  individuals covered by an employer’s group market health plan. The  majority of health plans offered by employers in 2003 provided coverage  for mental health services and prescription drugs, with preferred provider  organization (PPO) health plans having an average annual deductible of  $275. (See table 4.) In addition, the Pregnancy Discrimination Act  requires employers with 15 or more employees to cover expenses for  maternity services on the same basis as coverage for other medical  conditions.
The majority of the 36 states that designated state-qualified health plans  did so through arrangements with one or more insurers selling individual  market coverage. Of the 7 states we reviewed with state-qualified health  plans, 6 provided state-qualified HCTC coverage through an arrangement  with one or more insurers, all of which sold coverage in the individual  market (see table 5).
Health coverage purchased in the individual market typically includes  more restrictions on covered benefits and higher deductibles than group  market coverage offered through an employer. In the six states we  reviewed that designated arrangements with insurers as state-qualified  plans, we typically found higher deductibles and one or more restrictive  benefit limitations for maternity care, mental health coverage, and  prescription drugs than would be typical for employer-sponsored group  market coverage, including COBRA plans. Limitations on these benefits  included lower maximums on annual or lifetime coverage, higher cost  sharing, or, in some cases, no coverage at all. For example:    One state-qualified HCTC health plan in Texas did not offer any coverage  for maternity care except for treatment of pregnancy-related  complications.
One state-qualified HCTC plan in Ohio limited mental health coverage to  10 days of inpatient coverage and 10 outpatient visits per year.
State-qualified health plans in Maryland, New York, and Pennsylvania  required a separate deductible for prescription drug coverage, while one  state-qualified health plan in Ohio did not provide coverage for brand  name prescription drugs.
Appendix III provides more information on the variation in benefits across  state-qualified HCTC plans in the seven states we reviewed that had state- qualified plans.
State-qualified HCTC plans provided through arrangements with insurers  in four of these six states offered HCTC recipients a choice of  deductibles—ranging from $250 to $5,000—while plans with no deductible  were available in New York and some counties in Pennsylvania. When  offered a choice among deductible amounts, the majority of HCTC  recipients in these four states generally purchased coverage with the  lowest deductibles available, typically $1,000 or less. (See table 6.)
Three of the seven states we reviewed that had state-qualified health plans  designated their high-risk pools as state-qualified plans. These state- qualified high-risk pools generally offered benefits similar to those offered  in the employer-sponsored group market, but almost always required  higher deductibles. Compared with the average $275 deductible for  employer coverage in 2003, the high-risk pool deductibles available to  HCTC recipients in the states we reviewed generally ranged from $500 to  $5,000. All of the qualified high-risk pools in these states provided HCTC  recipients with a choice of deductibles, with the majority of HCTC  recipients selecting the lowest option available in two of the three states.  (See table 7.)
In addition to a choice of deductibles, state-qualified HCTC plans in three  states (Maryland, North Carolina, and Pennsylvania) offered enrollees a  choice of benefit packages. HCTC recipients in these three states typically  selected the option providing more generous coverage, as in the following  examples:    The Maryland high-risk pool offered two plan options—a PPO plan with a  $1,000 deductible and 20 percent coinsurance for most services, and an  exclusive provider organization (EPO) plan with no deductible and $20,  $30, and $250 copayments for physician visits, specialist visits, and  hospital admissions, respectively. The majority of HCTC recipients   (56 percent) selected the EPO plan.
North Carolina provided state-qualified coverage through an arrangement  with an insurer, which offered a choice between two benefit packages— one with more comprehensive coverage that included lower copayments  for physician and hospital care and no separate deductible for prescription  drugs, and a second option with higher copayments for physician and  hospital care and a separate $200 prescription drug deductible. Most (80  percent) HCTC recipients selected the more comprehensive coverage.  In western Pennsylvania, the state-qualified plan provided coverage for  hospital and surgical expenses and certain preventive services with no  deductible and no coinsurance. HCTC recipients also had the option to  purchase a separate plan that added coverage for prescription drugs and  physician and specialist visits, with these benefits subject to a $750  deductible and 20 percent coinsurance. Almost 90 percent of HCTC  recipients purchased the optional coverage.
section_title: Cost of HCTC Health Coverage Varied Depending on Coverage Purchased
paragraphs: The cost of qualified coverage for advance HCTC enrollees varied  according to the number of individuals covered, whether the advance  HCTC enrollee was a TAA recipient or a PBGC beneficiary, and the type of  qualified coverage purchased. For example, in April 2004, the average total  monthly premium for advance HCTC coverage—representing both the  individual and federal share—was $404 for one person and $812 for two  people. In the eight states that we reviewed, the cost of coverage for HCTC  recipients was partly determined by the premium-setting practices of  qualified health plans.
subsections: section_title: Cost of Advance HCTC Coverage Affected by Number of Individuals Covered, Type of Enrollee, and Type of Coverage
paragraphs: The amount paid for qualified coverage by advance HCTC enrollees  nationwide varied according to the number of individuals covered as well  as whether the enrollees were eligible for the HCTC because they received  TAA benefits or because they received PBGC payments. For example, the  national average total advance HCTC premium—representing both the  enrollee’s 35 percent share and the government’s 65 percent  contribution—for a qualified plan covering one individual in April 2004  was $404, versus $812 for a qualified plan that covered two individuals.  PBGC beneficiaries, who were on average older than TAA recipients,  typically paid more for advance HCTC coverage, both for COBRA as well  as state-qualified plans. The average total premium for TAA recipients  receiving the advance HCTC in April 2004 was $480, compared to $661 for  advance HCTC enrollees receiving PBGC pension payments. Receipt of  the advance HCTC reduced the share of the premium paid by enrollees, on  average, to $168 for TAA recipients and $231 for PBGC beneficiaries. (App.  IV provides average total monthly premiums by state for TAA recipients  and PBGC beneficiaries receiving the advance HCTC.)
Monthly advance HCTC premium costs ranged widely nationwide,  depending on the type of qualified coverage purchased (see fig. 6). State- qualified HCTC coverage was, on average, more expensive than COBRA  for plans that covered one individual or an individual and one other family  member. However, when more than three individuals were covered on a  plan, COBRA coverage was more expensive, on average, than the state- qualified options. These premium comparisons do not reflect differences  in benefits among the different types of coverage.
Even with the tax credit, most advance HCTC enrollees paid more for their  35 percent share of qualified coverage than individuals purchasing health  coverage through an employer. For instance, in July 2004, the average  advance HCTC enrollee paid $137 for the 35 percent monthly share of  COBRA coverage for one person or contributed $293 toward family  coverage. In comparison, according to a 2003 national survey on employer  benefits, the average employee paid $42 per month to purchase one-person  coverage or $201 per month for family coverage purchased through their  employer. However, without the 65 percent subsidy provided by the  HCTC, the average advance HCTC enrollee continuing COBRA coverage  would likely have had to pay the entire $390 per month for one-person  coverage or $837 per month for family coverage.
section_title: Cost of State-Qualified HCTC Coverage Affected by Premium- Setting Practices
paragraphs: The cost of coverage for HCTC recipients within and across the eight  states we reviewed was partly determined by health plans’ premium- setting practices. As they do for non-HCTC applicants, state-qualified  health plans in the majority of states we reviewed that had designated  such plans adjusted premium rates to take into account enrollees’  demographic characteristics, including their health status. Other premium- setting practices affecting the cost of state-qualified HCTC coverage  included raising premiums to compensate for offering coverage on a  guaranteed issue basis and, in some cases, automatically charging HCTC  recipients higher premiums than what would typically be charged for  healthy individuals for whom they are not required to offer coverage on a  guaranteed issue basis. Although most state-qualified health plans had not  analyzed the extent to which HCTC recipients utilize services, preliminary  evidence suggested that insurers have not found the majority of these  individuals to be in poor health.
Health plans’ premium-setting practices depended on the type of state- qualified coverage offered. In four of the six states we reviewed where  state-qualified HCTC coverage was provided through arrangements with  insurers offering individual market plans (Maryland, North Carolina, Ohio,  and Texas), insurers took each applicant’s health status and medical  history into account when determining premiums, a process known as  medical underwriting. The other two states (New York and Pennsylvania)  charged the same rates for all enrollees. High-risk pools in the states we  reviewed generally charged enrollees different rates based on their age  (Illinois, Maryland, Texas), gender (Illinois, Texas), or county of residence  (Illinois, Texas). One high-risk pool (Texas) also charged tobacco users  higher premiums than nontobacco users.
Unlike COBRA or other group market coverage, where premiums are  based on the history of medical costs and demographic characteristics  associated with a group of individuals who are employees of a company or  related companies, eligibility and premiums in the individual market in  many states are based largely on each individual’s health status and risk  characteristics. Typically, the extent to which insurers selling coverage in  the individual market can raise premiums for older individuals or those  with existing health conditions is determined by each state. While the  premiums charged by insurers selling coverage in the individual market  may vary substantially, the premiums charged by state high-risk pools are  generally set between 125 percent and 200 percent of the standard  premium that an individual in good health would typically pay for  coverage in the individual market. Regardless of health status, HCTC  recipients purchasing COBRA coverage would be charged the same rate as  the rest of the employee group, while those purchasing coverage through a  high-risk pool would pay from 125 percent to 200 percent of the standard  premium charged to healthy individuals. HCTC recipients purchasing  coverage through an arrangement with an insurer would likely be charged  varying premiums based on their health status and other demographic  characteristics, with some unhealthy, high-risk individuals paying more,  and in some cases substantially more, than 200 percent of the rates  charged to individuals in good health. For example, in one state we  reviewed, the insurer offering qualifying coverage to HCTC recipients  charged individuals rated in their poorest health category 580 percent of  the premium charged to those rated in their healthiest category.
For state-qualified HCTC insurers, particularly those in the individual  market, having to provide guaranteed issue coverage to certain HCTC  recipients presents additional risk. For example, if an individual applicant  with 3 months of prior creditable coverage has a costly chronic medical  condition, such as juvenile-onset diabetes or heart disease, which would  otherwise typically result in that applicant being denied coverage, the cost  to the insurer may outweigh the premium paid, resulting in a loss to the  insurer. To compensate for this additional risk posed by the guaranteed  issue requirement, federal officials have granted permission for state- qualified HCTC health plans to charge higher premiums to individuals  rated in the poorest health categories—individuals who would otherwise  be turned down for coverage—as long as the additional premiums are  actuarially justified and pass state insurance department review.
One insurer we interviewed that sold state-qualified coverage in multiple  states, including one of the states we reviewed, used differing practices in  setting premiums for HCTC recipients in these states. In the state we  reviewed, this insurer reported that it had originally planned to offer  coverage on a guaranteed issue basis to all HCTC enrollees, regardless of  whether they had 3 months of prior creditable coverage, and to  automatically charge them 200 percent of the standard premium that it  would typically charge a healthy applicant. After the state department of  insurance rejected this premium-setting practice, the health plan set up a  two-tier pricing system whereby healthier individuals who passed medical  underwriting were charged the standard premium, while those who did  not pass underwriting were charged 200 percent of this rate. Although this  insurer modified its pricing method in the state we reviewed, the insurer  said that it continued to automatically charge all HCTC recipients a higher- than-standard premium in two other states where it sold state-qualified  coverage. Thus, although the guaranteed issue provision ensures that  qualified individuals will have access to HCTC coverage, regardless of age  or health status, it also means that the healthiest HCTC recipients may pay  more for such coverage than they otherwise would in the individual  market without guaranteed issue. Without this consumer protection,  however, HCTC recipients with certain preexisting medical conditions  would likely be unable to purchase coverage from state-qualified health  insurers selling individual market health plans.
Two states we reviewed (Maryland and Texas) offered state-qualified  HCTC coverage through both the state high-risk pool and through an  arrangement with an insurer. Because of the way health plans in these  states set premiums, less healthy HCTC recipients were likely to find the  high-risk pool coverage to be the less expensive of the two state-qualified  options, while healthier HCTC recipients were generally able to purchase  less expensive coverage through the arrangement with an insurer. For  example:  In Maryland, the health plan offered through an arrangement with an  insurer charged less healthy HCTC recipients 200 percent of the standard  premium typically charged an applicant in good health, whereas the state  high-risk pool charged all applicants 150 percent of the standard rate.  In Texas, high-risk pool rates were set at 200 percent of the standard  premium, while the state-qualified HCTC plan offered through an  arrangement with an insurer charged HCTC recipients rated in the poorest  health category 4.7 times as much as those rated in the average health  category and 5.8 times as much as those rated in the healthiest category.
Most of the state-qualified plans in the seven states we reviewed that had  such plans reported that they have not analyzed the extent to which HCTC  recipients utilize services, which would be one indicator of the health  status of the population receiving the HCTC. Officials from some of these  plans stated that they are collecting health service utilization data for  individuals receiving the HCTC but that they will need at least a full year’s  worth of data before drawing any conclusion as to the overall health status  of the TAA and PBGC populations. However, on the basis of preliminary  medical underwriting data that were provided by HCTC state-qualified  plans in two of the states we reviewed, more HCTC recipients have been  placed into the healthy or standard risk categories than into the poorest  health categories designated for this population. One health plan indicated  that fewer than half of its enrollees receiving the HCTC were placed in  below-average rating categories, while the other reported that one-fifth of  its HCTC enrollees were categorized as worse-than-average risks.
section_title: IRS Implemented the HCTC on Time and Is Addressing Some Early Implementation Issues
paragraphs: IRS’s HCTC program office met the statutory time frames for  implementing the HCTC, enabling individuals to claim the end-of-year  HCTC for December 2002 on their income taxes and making the advance  HCTC available on August 1, 2003. To meet these time frames, the HCTC  program office coordinated closely with other federal agencies, state  agencies, and private health plans and used private contractors  extensively. These stakeholders generally reported that the collaborative  effort to implement the HCTC went well and that the HCTC program office  was responsive to implementation issues that arose. For example, these  implementation issues included instances where individuals who were not  eligible for the credit claimed and received the end-of-year HCTC for 2002,  while others who were eligible and claimed it did not receive the payment.  IRS has been recovering payments made in error and revised its forms and  processes to reduce these problems for the end-of-year HCTC for 2003.  Implementation issues for the advance HCTC included the unwillingness  of certain health plans to accept advance credit payments; delays in health  plans’ receiving correct payments when premiums changed; and  inaccurate state eligibility lists that jeopardized individuals’ receipt of the  advance HCTC. The HCTC program office reported that, from February  2003, when work began to set up the advance HCTC, through April 2004,  start-up costs for design, development, and implementation of the HCTC  were about $69 million. After restructuring the HCTC program office to  transition from implementation activities to operating activities, costs for  the HCTC were expected to be about $40 million for the year starting July  1, 2004, and reflected a reduction in contractor staff, although contractors  will continue to perform the majority of the administrative and operational  work.
subsections: section_title: End-of-Year and Advance HCTC Available on Time
paragraphs: According to federal officials, in order to implement the HCTC on time,  IRS’s HCTC program office coordinated closely with federal agencies,  state agencies, and health plans and received extensive support from  private contractors. Implementation efforts for the end-of-year and  advance HCTC met the statutory deadlines contained in the TAA Reform  Act, making each form of the HCTC available for December 2002 and by  August 2003, respectively. While IRS’s HCTC program office had primary  responsibility for implementing the HCTC, officials from this and other  federal agencies involved in its implementation—HHS, Labor, and PBGC— reported that instituting the advance HCTC in particular was a cooperative  effort that went well. Officials from workforce agencies and health plans  in the states we reviewed largely concurred, stating that the HCTC  program office was helpful in implementing the HCTC and addressing  issues that have arisen. Meeting the 1-year implementation time frame for  the advance HCTC was challenging for state workforce agencies, however.  According to our survey of state workforce agencies conducted in March  2004, 71 percent reported that implementing the advance HCTC had been  somewhat or very difficult. For example, as figure 7 shows, state  workforce agency officials were less satisfied with the timeliness of the  information they received from the HCTC program and Labor to  implement the advance HCTC than they were with the assistance itself.
section_title: Ineligible Individuals Received End-of-Year HCTC for 2002, but New Procedures to Reduce Errors Were Instituted for 2003 Filing
paragraphs: HCTC program officials stated that, while individuals were able to claim  the end-of-year HCTC for premiums paid in December 2002, IRS was  unprepared to verify these claims and some credits were paid or denied in  error—that is, some individuals received the HCTC who should not have  and other individuals who were eligible for it did not. These errors were  the result of mistakes individuals made on their tax returns—partly  because of limited information in IRS’s tax publications and  communications for 2002 about how to claim the HCTC—and errors IRS  staff made in processing each claim manually. Claims for the end-of-year  HCTC in 2002 were still undergoing review as of June 2004, and the HCTC  program reported that of the $2.9 million disbursed, about $465,000 had  been improperly paid to ineligible individuals. More than half of this  amount (about $243,000) had been recovered, and IRS continues to seek  recovery of the rest. HCTC program officials stated that for those who do  not pay back the credit, future tax refunds would be offset by the  outstanding amount. Additionally, IRS is in the process of auditing 577  claims (about 2 percent of the total) for 2002 that were for greater  amounts than were expected. As of June 8, 2004, about half of the audits  had been completed, and about 85 percent of the HCTC amounts claimed  were disallowed.
To reduce the number of ineligible individuals receiving the end-of-year  HCTC for 2003, HCTC program officials instituted new procedures and  reporting requirements. For example, all tax records were prescreened  against state workforce agency and PBGC eligibility lists to identify who  was potentially eligible to receive the end-of-year HCTC. As of May 2004,  HCTC program officials reported that this screening had prevented about  8,000 ineligible individuals from improperly claiming the end-of-year HCTC  on their 2003 tax returns. However, this prescreening only identified  whether an individual was potentially eligible for the HCTC at any time  during the year, not the specific month or months in which he or she might  have been eligible. IRS provided tax professionals with information about  the HCTC and mailed each individual who was identified as potentially  eligible for the credit in 2003 information about how to claim the end-of- year HCTC. Additionally, the IRS tax form used to claim the end-of-year  HCTC was revised to include clearer instructions to help filers determine  whether they were eligible for the credit, and individuals were required to  attach copies of invoices and payments for each month in 2003 for which  they claimed the end-of-year HCTC. This procedure does not, however,  ensure that the individual purchased qualified health coverage. Therefore,  potentially eligible individuals could have claimed the end-of-year HCTC in  2003 for more months than they should have or for coverage that did not  qualify for the credit.
section_title: HCTC Program Office Adapted Policies and Procedures to Resolve Some but Not All Advance HCTC Implementation Issues
paragraphs: Advance HCTC payment and implementation issues prompted the HCTC  program to change some of its procedures, but not all issues have been  resolved. One such payment issue for which the HCTC program adapted  its procedures was the refusal of some automatically qualified health plans  to accept the advance HCTC from IRS. HCTC program officials reported  that certain health plans refused to accept payments from IRS, primarily  because they found the process to register to receive advance payments  burdensome or they did not want to receive electronic payments.  According to these officials, health plans had to register in the primary  vendor database for the federal government—the Central Contractor  Registration (CCR)—and accept electronic payments in order to receive  advance HCTC payments. The CCR requirement was reported to cause  delays, and some plans, especially smaller ones, refused to accept  electronic payments or did not have the necessary systems to process  them. To encourage health plans to participate, the HCTC program office  changed its registration process for health plans—it no longer requires  plans to register with the CCR—and now issues paper checks if a health  plan will not accept electronic payments. HCTC program officials reported  that these changes have prompted some plans to agree to participate.  However, as of June 2004, 211 health plans still refused to participate.  Most of these were COBRA plans that covered few HCTC-eligible  individuals. Because these 211 plans refused to accept payments, about  447 individuals who had tried to enroll for the advance HCTC had to wait  until the end of the year to claim the HCTC. Officials from two COBRA  plans told us why their plans did not accept advance payments: an official  from one plan stated that too few individuals qualify for the HCTC for the  plan to consider participating, while an official from another plan was  concerned that the advance HCTC would encourage less healthy  individuals to retain coverage and that this would result in financial losses  for the plan. Nevertheless, a total of more than 600 health plans covering  more than 13,000 individuals have agreed to receive the advance HCTC as  of June 2004.
An unresolved payment issue identified by 3 of the 10 state-qualified plans  we contacted in the states we reviewed was the receipt of incorrect  advance HCTC payments from IRS when premiums change. While officials  from most of the state-qualified plans we interviewed (6 of 10) reported  that either they did not experience any problems with advance HCTC  payments or that any problems they experienced had been resolved, the  most common unresolved issue, reported by officials from three of the  plans that identified ongoing issues, dealt with the receipt of incorrect  payments when premiums changed. This problem was attributed largely to  the time it takes for HCTC enrollees to notify the HCTC program of the  new premium and for the HCTC program to adjust the allowable premium  amount. For example, one plan reported that payments from IRS are  incorrect—usually less than the required amount—for a couple of months  after a premium change. To mitigate this problem, two officials from state- qualified plans suggested that the health plan, rather than the HCTC  enrollee, notify the HCTC program of premium changes. Officials from two  COBRA plan administrators that had a large number of advance HCTC  enrollees stated that they did report premium changes directly to the  HCTC program. However, HCTC program officials reported that some  plans prefer not to report the changes to HCTC because it is outside their  normal procedures or they have few members receiving the advance  HCTC.
An implementation issue affecting enrollees, for which the HCTC program  revised its procedures, concerned how the program office responded to  enrollees’ payments that were less than the requested amount or late.  According to HCTC program officials, between August 2003 and February  2004, more than 1,700 individuals who had enrolled for the advance HCTC  were terminated temporarily from the advance HCTC because their  payments to IRS were less than their 35 percent share or they were late.  Approximately 55 percent of the individuals who were terminated  subsequently reenrolled for the advance HCTC. HCTC program officials  noted that the initial billing and payment procedures generated numerous  calls to the customer service center because individuals received multiple  invoices for their 35 percent premium amount, some of which they  received late because of mail delivery problems. To mitigate this confusion  and the burden of reenrolling individuals who had been dropped, the  HCTC program office changed its billing and payment procedures in  March 2004. Under the revised procedures, only one invoice would be sent  each month and, instead of terminating individuals whose payments were  less than the required amount, the HCTC program office would add a 65  percent HCTC proportional to the payment they receive and forward this  amount to the health plan. The HCTC enrollee would be responsible for  paying any outstanding difference to the health plan directly. HCTC  program officials told us that since making these changes, no advance  HCTC enrollee has been terminated as a result of payments that were less  than the required amount or late. Additionally, officials we interviewed  from five of the health plans in the states we reviewed reported that they  were lenient in applying their payment rules to ensure that plan members  did not lose coverage as a result of problems with the advance HCTC. For  example, an official from one health plan reported that the plan had  extended from 30 to 90 days the grace period for advance HCTC members  to pay their monthly premiums.
The HCTC program office has also changed its procedures to address the  receipt of incomplete lists of potentially eligible individuals from state  workforce agencies. HCTC program officials reported that the lists state  workforce agencies provide on which the HCTC program office relies to  determine eligibility for the advance HCTC were incomplete for many  states and that verifying that individuals remained eligible for the advance  HCTC was time consuming. Some states also reported problems with  transmitting these data to IRS. Ohio, for example, reported that the HCTC  program office does not always receive all of the names of potentially  eligible individuals that it sends. HCTC program officials reported that  from October 2003 through March 2004, the lists of TAA recipients  potentially eligible to receive the HCTC submitted by about one-third to  more than one-half of states (16 states to 28 states) failed to include the  names of all eligible TAA recipients. Since October 2003, the HCTC  program office has audited these states’ lists and asked the workforce  agencies to confirm that their transmissions were correct if any of the  individuals enrolled to receive the advance HCTC from the previous  month failed to reappear as eligible. During the first 6 months in which the  HCTC program office performed these audits, it identified 2,984  individuals who were enrolled to receive the advance HCTC in a previous  month but whose names dropped from the state lists in the current month.  The state workforce agencies determined that approximately 55 percent  (or 1,648) of these individuals were still eligible for the advance HCTC and  that their names should not have been dropped from the list. Thus,  without this audit process these individuals would have erroneously lost  eligibility for the advance HCTC. However, HCTC program and Labor  officials reported that this verification process is a burden on HCTC  program staff and the states.
HCTC program officials reported that they did not track advance payment  errors that occurred as a result of mistakes made by IRS. While these  officials acknowledged that some mistakes did occur, such as late  payments or accounting errors, they said that the majority of payments  were timely and accurate and that problems were resolved at the time they  occurred. Likewise, most officials from health plans we spoke with  reported few problems with IRS’s payments; problems identified included  payments containing incorrect identification numbers or payments for  incorrect amounts.
section_title: HCTC Program Office Used Contractors to Implement and Perform Most Program Functions
paragraphs: IRS established the HCTC program office with primary responsibility for  overseeing and coordinating efforts for the HCTC. The HCTC program  office is responsible for resolving operational and legal issues and  monitoring the overall progress of the HCTC on a day-to-day basis. An  executive steering committee, composed of affected federal agencies and  contractors, also was established to provide guidance to the HCTC  program office. The majority of officials on the HCTC program’s executive  steering committee are IRS or Treasury officials. High-level officials from  each of the other federal agencies involved with the HCTC—Labor, HHS,  and PBGC—as well as the IRS and Treasury officials are voting members.  Officials from IRS’s primary private contractor and a subcontractor— Accenture and The Lewin Group, respectively—are nonvoting members of  the committee. This committee meets monthly to provide guidance on  policy, legal, and programmatic issues.
To meet the implementation date for the advance HCTC, IRS relied on  contractors. According to HCTC program officials, IRS staff work closely  with contractor staff and oversee their work on an ongoing basis. For  example, within the HCTC program office are six project teams, each of  which is managed by a senior-level IRS staff person. Paired with each  senior-level IRS staff person is a senior contractor staff person, and most  of the staff performing specific operational tasks for the HCTC are from  the contractor. While the senior IRS and contractor staff share  responsibility for their project team’s work, the IRS staff person  establishes the direction of the work on the basis of the HCTC program’s  strategic plan, sets priorities, and brings knowledge about IRS’s processes  to the team. IRS and contractor staff responsibilities are also clarified in  the contract documents. For example, IRS contract documents state that  the government responsibilities include defining the rules under which the  program will function and that the primary contractor’s responsibilities  include designing and administering the HCTC program according to these  rules. IRS officials in the HCTC program reported that close collaboration  between government and contractor staff helped them implement the  advance HCTC in a timely manner.
Officials from IRS’s contracting office reported that oversight of the  primary HCTC contractor responsible for developing and maintaining  much of the HCTC program office’s infrastructure is conducted in several  ways. IRS contracting officers include direction on how work is to be  completed in work requests, as well as reporting requirements and  deliverables. For example, one work request required the contractor to  report daily on the handling of calls received by the call center for a few  months in 2003. IRS staff in the specific area where the work is to be done  review and approve each work request under the contract, monitor the  contractor’s work, and make recommendations to the contracting official  regarding whether the completed work is acceptable. Additionally, IRS  contracting officials reported that they review monthly status reports, cost  documents, and deliverables submitted by the primary contractor.  However, the HCTC program office has not instituted performance  measures and is currently working on draft measures and preliminary  goals for fiscal year 2005.
To implement and administer the advance HCTC, Congress appropriated  $70 million to IRS for fiscal year 2003, which will remain available through  fiscal year 2004, and $35 million for fiscal year 2004, available through  fiscal year 2005. HCTC program officials expected that costs to  administer the HCTC program—from the time that work by the primary  contractor began in February 2003 through June 2005—would be about  $116 million. These costs, broken down by major activities, included  about $33 million for design and development work during February 2003  through April 2004. Implementation costs to establish the systems that  would be used on an ongoing basis and costs to administer the advance  HCTC for the first 9 months it was available were reported to be about $36  million for May 2003 through April 2004. In May and June 2004, the HCTC  program office engaged in a planning process during which it restructured  its operations and determined how it would transition from  implementation activities to operating activities. Costs to reorganize and  administer the HCTC during this 2-month transition period were expected  to be about $6 million. After transitioning to operating activity levels,  officials expected that costs for the HCTC would be about $40 million for  the year July 2004 through June 2005, and IRS officials reported that they  are identifying ways to further lower operating costs. Included in this $40  million are about $32 million for operating costs and about $8 million for  program enhancements such as software updates. In total, the majority (at  least $97 million) of the approximately $116 million to administer the  HCTC—from its early 2003 start-up through mid-2005 operations—was  expected to be paid to IRS’s contractors. (See table 8.)
From start-up through June 2004, IRS’s primary contractor was  responsible for most of the work for the HCTC. The contractor’s  responsibilities during this time included assisting in the development of  eligibility and payment processing policies and procedures, maintaining  and operating the program office, and establishing a call center. While IRS  had an average of 9 full-time-equivalent staff assigned during this time to  design, develop, implement, and transition the HCTC program to ongoing  operational service levels, the primary contractor had an average of 243  full-time-equivalent staff working on these activities.
Starting July 1, 2004, HCTC program officials expected that operating and  enhancement costs for the next 12 months would be about $40 million.  This figure also reflects a decrease in contractor staff. These costs reflect  a reduction in service levels and IRS’s assumption of more of the  administrative responsibilities for the HCTC. HCTC program officials  stated that reduced service levels means that, for example, the HCTC  program will focus on responding to issues raised by health plans rather  than providing as much individual-level outreach to health plans as they  had in the past. IRS’s primary contractor is expected to continue to  perform the majority of work for the HCTC, and officials reported that  there would be a decrease in the amount of work done by the contractor,  with contractor staffing to decrease to 167 full-time-equivalents. There  would be a slight increase in the amount of work done by IRS, with no  increase in the number of IRS staff positions designated but with hiring  done to fill vacant positions to reach a total of 17 full-time equivalents.
section_title: 45 States Received National Emergency Infrastructure Grants; Fewer States Received National Emergency Bridge or High-Risk Pool Grants
paragraphs: As of August 2004, 45 states received national emergency infrastructure  grants from Labor to help them set up mechanisms to administer the  HCTC, and 11 states received national emergency bridge grants to help pay  a portion of the premiums. In total, $45 million, or half of the $90 million in  available national emergency grant funds, was awarded. In response to our  survey of state workforce agencies, two-thirds of the states that did not  apply for the bridge grants said they did not have systems in place to  implement the grant. A total of 21 states received high-risk pool grants  from CMS as of August 2004. Sixteen states received high-risk pool  operating grants to offset losses in state high-risk pools, and 6 states were  awarded a seed grant for establishing a new high-risk pool (1 state  received both a seed and an operating grant). As of August 2004, less than  half of the $80 million in funds available for high-risk pool operating grants  had been awarded, as well as less than one-fifth of available high-risk pool  seed grants. CMS officials reported that one reason seed grants were not  more popular is that states were reluctant to take on the ongoing financial  obligation of a high-risk pool. (App. V lists the states awarded national  emergency grants and high-risk pool grants and the amounts awarded.)
subsections: section_title: Half of Available National Emergency Grant Funds Have Been Awarded
paragraphs: As of August 2004, half ($45 million) of the $90 million available for  national emergency grants had been awarded—about $7 million for  infrastructure grants and about $38 million for bridge grants. Most states  received national emergency grants, with 45 states receiving infrastructure  grants and 11 receiving bridge grants. For fiscal year 2002, $60 million was  appropriated for national emergency grants, including $50 million for  bridge grants and $10 million for infrastructure grants. An additional   $30 million was appropriated for fiscal year 2003 for both bridge and  infrastructure grants.
While bridge grants were originally awarded to provide individuals with a  65 percent subsidy prior to the implementation of the advance HCTC in  August 2003, Labor has expanded the use of bridge grants to cover the 1-  to 3-month gap period during the HCTC enrollment process when  individuals must pay 100 percent of their premiums out of pocket. Five  states—Maine, Maryland, North Carolina, Ohio, and Virginia—are using  bridge grant funds to cover this gap period, and more states are in the  process of seeking funds for this purpose. State officials reported that  these grants are important to help individuals cover premiums during the  advance HCTC enrollment process and that the availability of these funds  during this period could increase eligible individuals’ interest in and  receipt of the HCTC.
In March and April 2004, the HCTC program piloted an initiative called  “HCTC National Emergency Grant Bridge Support Activities” to support  states that received bridge grant funds. The pilot was tested in Maryland  and Virginia and involved three activities. First, the HCTC program began  asking individuals in these states when they applied for the credit to  consent to the HCTC program sharing certain private enrollment  information with state officials, such as names, addresses, and enrollment  status. According to the HCTC program, most individuals (80 percent) in  these states consented to this at the time of enrollment. The HCTC  program office then sent a report to states weekly showing HCTC  enrollment status, contact information, Social Security number, and  eligibility type for all TAA recipients and PBGC beneficiaries who had  consented to disclosure of this information. Pilot states were encouraged  to use this information as a tool for outreach and for determining an  individual’s eligibility for bridge grant payments. Second, the HCTC  program office offered support to states in promoting their bridge grant  program to potentially eligible individuals. Third, the HCTC program office  provided ad hoc support to bridge grant states on questions regarding  HCTC eligibility and enrollment. Virginia reported that it used the consent  reports to conduct outreach such as mailing application forms to potential  eligibles, as well as to monitor enrollment status to avoid potential  overpayments. Maryland used the consent reports to contact prescreened  PBGC beneficiaries and offered them bridge services, including mailing  out application packages, and Maryland officials said that the pilot  experience helped improve federal and state coordination. The HCTC  program and Labor have agreed to expand the bridge grant pilot to other  states.
In response to our survey of state workforce agencies in March 2004,  officials cited a variety of reasons to explain why they did not apply for  bridge or infrastructure national emergency grants. For example, officials  in two-thirds of the states that did not apply for the bridge grants said that  they did not have systems in place to implement the grant. The rest of the  states cited a variety of reasons for not applying, including difficulty with  the grant application process, insufficient TAA workers or activity, no  need for the funding, and prohibitive administrative costs. One state  indicated that it was hesitant to assist individuals with obtaining health  coverage because it was unable to make decisions about health insurance  coverage. Of the five states that Labor reported had not received  infrastructure grants, two said that they did not require funding from the  grant and another said that it had to complete some system changes before  applying for a grant. One state said it would be applying for the grant in  the future, and another was not sure whether an application had been  submitted. (See table 9.)
section_title: Twenty-one States Received Grants to Start or Operate High-Risk Pools
paragraphs: Almost half of the states (21 states) received high-risk pool grants as of  August 2004. Six states were awarded seed grants of between about  $53,000 and $1 million for establishing a high-risk pool and 16 states  received operating grants to offset losses incurred by their high-risk  pools. As of August 2004, $4 million of the $20 million available for seed  grants had been awarded to establish new high-risk pools, and less than  half (about $30 million) of the $80 million available for high-risk pool  operating grants had been awarded. CMS was reviewing an application  from the District of Columbia, as of August 2004, and Vermont’s  application will be withdrawn because legislation to create a high-risk  pool in Vermont was not enacted by its state legislature. (See app. V for a  list of high-risk pool awards to states.)
According to a CMS official, one reason more states did not apply for high- risk pool seed grants was that states’ fiscal concerns made them reluctant  to take on the ongoing financial obligations of a new high-risk pool, which  typically enrolls individuals with a history of high medical costs, incurs  costs potentially higher than the premiums received from enrollees, and  requires subsidization from taxes on local insurers or other revenue  sources. CMS officials also said that several states that had high-risk pools  were not eligible for the high-risk pool operating grant because they did  not meet the eligibility criteria. The operating grant is available only to  qualified high-risk pools that meet certain eligibility criteria, and the award  amounts are based on the number of uninsured individuals in each state.  In addition to meeting the criteria for a qualified high-risk pool contained  in the Public Health Services Act, eligibility criteria for receipt of the  grant included restrictions on the premiums charged, the number of plan  choices available to enrollees, and the availability of mechanisms to fund  ongoing losses incurred by the pool. California and Texas, where the  numbers of uninsured people are among the highest in the nation and  therefore would have been eligible for proportionately larger shares of the  grant funds, were among the states that did not meet these criteria.  California did not qualify because its high-risk pool did not meet the  qualified high-risk pool requirement that eligible individuals have  immediate access to the pool, and Texas did not qualify because the  premiums for its high-risk pool were set above the allowable limits. Three  other states—New Jersey, Idaho, and Oregon—that applied for an  operating grant were turned down because their arrangements did not  meet the definition of a qualified high-risk pool.
section_title: Conclusions
paragraphs: The Trade Adjustment Assistance Reform Act of 2002 established the  HCTC to help trade-displaced workers and retirees whose pension plans  have been assumed by PBGC to purchase health coverage. The  establishment of the HCTC within 1 year of enactment, including  development of a new mechanism for paying the HCTC directly to  hundreds of health plans on behalf of enrollees in advance of the premium  due date, resulted from the collaborative efforts of multiple federal and  state agencies and private health plans. As implementation issues arose— such as certain health plans’ reluctance to participate, some initial  payment problems, and ineligible individuals receiving the end-of-year  credit in 2002—the IRS-based HCTC program office worked with other  federal, state, and private stakeholders and adapted its policies and  processes to address these and other issues.
Despite these efforts, the number of individuals receiving the HCTC to  date continues to be a smaller portion of those potentially eligible than  many stakeholders had expected and some implementation issues remain  unresolved. A major factor cited by many state and health plan officials as  a reason for lower than expected enrollment was the affordability of  coverage, as some eligible individuals may find it difficult to pay the entire  premium for 3 to 6 months to maintain coverage until they receive the  advance HCTC, and even the 35 percent share of premiums, once the  HCTC covers remaining premium costs can represent a high proportion of  income, particularly for displaced workers or retirees. Further, while the  advance payment option was intended to make the HCTC attractive for  eligible individuals by minimizing their out-of-pocket payments, most  HCTC recipients in 2003 did not use this option. Instead, the majority of  recipients opted to receive the HCTC by claiming the credit on their year- end tax forms. State, health plan, and union officials told us that the  complexity of the eligibility determination and enrollment process  contributed to the lower than expected usage of the advance payment  option. For example,    The multitude of tax, labor, and health coverage requirements related to  the HCTC are challenging for workers and retirees to navigate. Potentially  eligible individuals must often contact multiple federal, state, and private  entities to obtain the information they need to enroll. While the HCTC  program office offers information to potentially eligible individuals  through its call center, this resource begins after individuals have been  identified by states or PBGC as potentially eligible and often after  individuals have already made decisions about maintaining, changing, or  dropping health coverage.  Individuals who have more than a 63-day break in continuous health  coverage may lose federal consumer protections guaranteed in the TAA  Reform Act, such as guaranteed acceptance by a health plan and coverage  for their preexisting medical conditions. Given that it takes 3 to 6 months  to become eligible for and receive the advance HCTC, during which time  the individual is responsible for the full premium amount, some  individuals may lose these consumer protections if they do not maintain  coverage during this time.
To receive the HCTC, the TAA Reform Act requires that an individual must  meet certain trade readjustment allowance eligibility requirements,  including (1) waiting 60 days or more from the time that a petition to  certify that workers were displaced due to trade is submitted to Labor, and  (2) complying with the requirement to obtain reemployment training or  obtain a waiver from training each month. State workforce agencies  contend that granting these waivers to facilitate eligibility for the HCTC is  an added administrative burden that further complicates enrollment in the  HCTC.
Lists from state workforce agencies used to verify individuals’ eligibility  were sometimes incomplete, causing individuals to lose access to the  advance HCTC if their names were erroneously dropped. Although the  HCTC program office began auditing the lists to ensure that they  contained all eligible individuals, this time-consuming process had not led  to the correction of the underlying problem with the accuracy of the state  lists.
Enrollees may face delays in having the correct amount of their advance  HCTC payment adjusted and paid promptly to their health plans if they fail  to notify the HCTC program office when the health plan changes their  premiums.
PBGC beneficiaries who enroll in Medicare lose eligibility for the HCTC  for themselves and their spouse and other dependents, even though their  spouse or dependent may not yet be eligible for Medicare and may not  have access to other sources of coverage. State and union officials often  noted that this was a concern of PBGC beneficiaries when discussing  potential eligibility for the HCTC.
As the HCTC program begins its second full year and transitions from  design and early implementation to more routine operations, it is reducing  its contractor staffing and some service levels. As the program evolves, a  less complex enrollment process and shorter time period before enrollees  begin receiving advance payments could enhance the attractiveness of the  HCTC and the advance payment option for eligible individuals.
section_title: Matters for Congressional Consideration
paragraphs: We suggest that Congress consider taking the following three actions:    To simplify the advance HCTC eligibility process and enable some trade- displaced workers to qualify for the HCTC sooner after losing  employment, Congress may wish to amend existing law to permit TAA  recipients to enroll in the HCTC program (1) without waiting 60 days or  more to establish eligibility for the trade readjustment allowance and (2)  without first meeting trade readjustment allowance requirements  pertaining to training.
To more promptly reimburse eligible individuals for some of the health  coverage premiums they paid during the 3 to 6 months that the advance  HCTC eligibility and enrollment process typically takes, Congress may  wish to allow the HCTC program to retroactively pay the 65 percent HCTC  for the 1 to 3 months between enrollment for and receipt of the advance  HCTC, rather than requiring individuals to wait for the end-of-year credit  to receive that portion of the benefit.
To help eligible individuals maintain their rights to guaranteed coverage  and other consumer protections during the time it takes to become eligible  and enroll for the HCTC, Congress may wish to specify that for individuals  who had health coverage for the 3 months immediately prior to becoming  eligible for TAA benefits or PBGC pension payments, the 63-day break in  coverage used to determine continuous coverage may begin with the  HCTC program office’s notification of potential eligibility.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Labor, Commissioner of Internal  Revenue, Administrator of CMS, and Executive Director of the PBGC take  the following five actions.
To help individuals understand and comply with the multiple labor, health  coverage, and tax eligibility requirements for receipt of the HCTC, the  Secretary of Labor, the Commissioner of Internal Revenue, the  Administrator of CMS, and the Executive Director of the PBGC should, in  coordination with state officials, provide for a centralized resource for  individuals to receive information on and assistance with HCTC eligibility  criteria, including individualized assistance in completing each step of the  eligibility and enrollment process and information about qualified health  coverage options available in their local area. This centralized resource  should be available at the time individuals must make decisions about  purchasing qualifying health coverage and meeting other qualifying  criteria, which may occur before the HCTC call center and other existing  resources have been notified about an individual’s potential eligibility.
To ensure that HCTC-eligible individuals and recipients receive timely and  appropriate information, responses to inquiries, enrollment processing,  and advance HCTC payments, the Commissioner of Internal Revenue  should evaluate the effect that any reduced service levels will have on  eligible individuals and health plans’ ability to receive the HCTC on a  timely basis and their satisfaction with the information and services  provided.
To improve the quality of eligibility information provided by the states, the  Secretary of Labor and the Commissioner of Internal Revenue should  coordinate to improve the accuracy of data received from state workforce  agencies.
To simplify payment processing for advance HCTC enrollees and avoid  disruptions resulting from premium changes, the Commissioner of Internal  Revenue should encourage participating health plans to provide  notification of changes in premiums directly to the HCTC program office  rather than relying primarily on individuals for providing this information.
Given that PBGC beneficiaries who enroll in Medicare lose eligibility for  the HCTC even though their spouses or other dependents may not yet be  eligible for Medicare or have alternative sources for insurance coverage,  the Commissioner of Internal Revenue and the Executive Director of the  PBGC should coordinate to report to Congress on how many PBGC  beneficiaries previously receiving the HCTC have attained the age of 65  and potentially lost eligibility due to enrolling in Medicare, and how many  of these former HCTC recipients have spouses or other dependents who  are no longer able to receive coverage subsidized by the HCTC.
section_title: Agency and State Comments and Our Evaluation
paragraphs: We provided a draft of this report to Labor, IRS, CMS, and PBGC and  officials in the eight states we reviewed, including each state’s workforce  agency and the department of insurance or high-risk pool in seven states.  We received comments from all four federal agencies, five states’  workforce agencies (California, Maryland, New York, Ohio, and  Pennsylvania), five states’ departments of insurance (California, New  York, Ohio, Pennsylvania, and Texas), and two states’ high-risk pools  (Illinois and Maryland). The four federal agencies either concurred with  our recommendations or deferred to IRS as the lead agency in  implementing the HCTC. The state agencies that commented on our draft  generally concurred with our findings. Comments from the federal  agencies are reprinted in appendixes VI through IX.
Regarding our recommendation that Labor, IRS, CMS, and PBGC work  together to develop a centralized resource to help individuals understand  the eligibility requirements for the HCTC, IRS agreed with our  recommendation and highlighted efforts it has made to date to provide a  centralized resource, including developing informational documents for  individuals and states, making information available on its Web site, and  establishing a call center. Labor agreed on the importance of providing  individuals with information about the HCTC and highlighted certain  actions it had taken to provide information and training to state workforce  agencies and other interested parties such as businesses and unions. Labor  also suggested reviewing and evaluating the quality of the existing  information before taking further actions. PBGC commented that it would  coordinate with the other agencies to address this recommendation, and  CMS deferred to IRS as the lead in HCTC outreach and education. While  we recognize that agencies have made efforts to provide individuals with  information about the HCTC, we noted in the draft report that  individualized assistance is not available until after individuals may have  already made decisions that affect their eligibility for the HCTC. Thus,  while a review of existing resources may be helpful, we have added to our  recommendation the need for a centralized resource that provides  individualized information and assistance earlier than it is currently  available.
Regarding our recommendation for IRS to evaluate whether any reduced  service levels will affect individuals’ and health plans’ satisfaction, IRS  stated that the agency cannot at this time systematically measure  customer satisfaction. In response to our recommendation, however, IRS  stated that it would include questions in future surveys or other research  to elicit an indication of changes in satisfaction.
In response to our recommendation that IRS and Labor improve the  quality of eligibility information provided by the states, IRS agreed that the  information provided by states continues to present a challenge. IRS noted  that, although it does not have authority over states to implement  solutions to problems with the eligibility lists, it will work with Labor to  develop a plan for improving the accuracy of these data. Labor agreed with  our recommendation and highlighted the burden the audits placed on  states and agreed to continue to work with IRS to improve the quality of  the data.
In response to our recommendation that IRS encourage health plans to  provide notifications of premium changes directly to the HCTC program  office, IRS agreed to develop an action plan to make this change. IRS  noted that it would likely phase in this change because of the number of  plans and individuals affected.
IRS and PBGC agreed with our recommendation that PBGC work with IRS  to report to Congress the number of PBGC beneficiaries who turn 65 and  lose eligibility for the HCTC even though their spouse or dependent may  still need HCTC coverage. Additionally, PBGC suggested that IRS, as the  lead agency for the HCTC, submit the recommended information to  Congress. IRS noted that some estimates may be necessary because not all  data elements are readily available to IRS or PBGC.
In addition to its comments on our recommendations, IRS stated that the  HCTC presented significant new responsibilities for IRS and that  challenges remain. IRS reported it is continuing to identify ways to  improve the operation of the HCTC program, decrease administrative  costs, and obtain data about those who receive the HCTC in order to make  outreach activities more effective. IRS stated that it is working to shorten  the period of time required before an individual receives the advance  HCTC. It noted, however, that the first 3 months of the 3- to 6-month  period we identified for this process relates to TAA certification  requirements, and that amending these requirements may have broader  implications than just for the HCTC program. Additionally, regarding our  statement that the benefits offered by qualified health plans across states  differ widely, IRS noted that the coverage available for the HCTC is  dependent on decisions made by the states and the plans that volunteer to  participate. IRS stated that it hopes to obtain data that will enable a better  understanding of the health status and other characteristics of HCTC  enrollees to help alleviate health plans’ uncertainty about health care costs  of HCTC individuals compared to others and to encourage more health  plans to participate in the advance HCTC program.
IRS and Labor and officials from Maryland, New York, Ohio, Pennsylvania,  and Texas also provided technical comments, which we incorporated as  appropriate.
As agreed with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after its  date. We will then send copies to the Secretary of Labor, Secretary of the  Treasury, Administrator of CMS, Commissioner of Internal Revenue,  Executive Director of PBGC, appropriate congressional committees, and  other interested parties. We will also make copies available to others upon  request. In addition, this report will be available at no charge on GAO’s  Web site at http://www.gao.gov.
Please call me at (202) 512-7118 if you have additional questions. Another  contact and key contributors are listed in appendix X.
section_title: Appendix I: Advance Health Coverage Tax Credit Enrollees, by State, July 2004
paragraphs: Data for Puerto Rico are also included in this table.
section_title: Appendix II: State-Qualified Coverage Options
paragraphs: As of July 2004, 36 states had designated state-qualified coverage options  that could be purchased by individuals receiving either the advance or  end-of-year health coverage tax credit (HCTC). Another 3 states—Arizona,  Idaho, and Washington—had designated state-qualified plans, but these  plans were not yet open to enrollment as of July 2004. Most of the 36 states  that made state-qualified coverage available chose to provide this coverage  through arrangements with insurers or through state high risk-pools, and 3  states designated both their high-risk pool and an arrangement with an  insurer as state-qualified coverage. Thirteen states designated mini- COBRA coverage—state-based continuation coverage pertaining to  insurers providing coverage to plans maintained by employers with fewer  than 20 employees. Mini-COBRA coverage was the sole state-qualified  coverage option available to HCTC recipients in 4 states (see table 10).  According to federal officials, only a small percentage of Trade  Adjustment Assistance (TAA) recipients and Pension Benefit Guaranty  Corporation (PBGC) beneficiaries eligible to receive the HCTC likely had  access to mini-COBRA coverage, as few of these individuals formerly  worked for an employer with fewer than 20 employees.
section_title: Appendix III: Variation in Benefits Across State-Qualified Health Plans in Seven States
paragraphs: The benefits offered to HCTC recipients varied across coverage types and  from plan to plan. COBRA benefits, which were typically identical to the  benefits provided to working individuals covered by the employer’s group  market health plan, generally included lower deductibles than high-risk  pools and more comprehensive benefits and lower deductibles than state- qualified arrangements with insurers in the seven states we reviewed that  had state-qualified plans.
The majority of state-qualified plans in the states we reviewed were  preferred provider organization (PPO) plans, although health maintenance  organization (HMO), exclusive provider organizations (EPO), unrestricted  fee for service (FFS), and point of service (POS) plans were available in  some states. According to a national employer benefits survey, PPO  health plans offered by employers in 2003 generally included an average  annual deductible for services provided within the health plan’s preferred  provider network of $275. Table 11 shows that most of the state-qualified  health plans in the states we reviewed offered a choice among deductible  amounts, ranging from $0 to $5,000, and that HCTC recipients generally  selected the lowest deductibles available, typically $1,000 or less.
We reviewed these state-qualified health plans for the extent of the  benefits they offered with regard to maternity care, mental health care,  and prescription drugs. The extent to which maternity benefits were  covered by state-qualified plans in the states we reviewed is shown in table  12. Employer-sponsored plans typically provided coverage for maternity  benefits because the federal Pregnancy Discrimination Act required  employers with 15 or more employees to cover expenses for maternity  services on the same basis as coverage for other medical conditions. Only  one state-qualified plan in the states we reviewed did not provide coverage  for maternity benefits, and three state-qualified health plans offered  maternity coverage that was available as an optional benefit with an  additional premium charge.
The mental health benefits offered by state-qualified health plans in the  states we reviewed are summarized in table 13. A national survey of health  benefits offered by employers in 2003 reported that 99 percent of employer  PPO plans provided coverage for both inpatient and outpatient mental  health services, and the majority of these plans provided coverage for at  least 21 days of inpatient care and 21 outpatient visits per year. In  comparison, two state-qualified health plans in a state we reviewed did not  provide any coverage for mental health benefits, and one health plan in  another state we reviewed limited coverage of mental health benefits to 10  inpatient days and 10 outpatient visits per year. State-qualified plans in  three states required enrollees to pay 50 percent of the cost of outpatient  mental health visits. Two state-qualified health plans in one state limited  coverage to certain mental disorders.
Prescription drug benefits offered by state-qualified health plans in the  states we reviewed are summarized in table 14. According to a national  survey of employer-sponsored health benefits, 99 percent of employer PPO  plans provided coverage for prescription drugs in 2003, and 92 percent of  all employer-sponsored plans did not require a separate prescription drug  deductible. The average copayments for prescription drugs reported in  this survey were $9 for generic products, $19 for brand-name products that  the plan designated as preferred, and $29 for brand-name products that the  plan did not designate as preferred. All but one of the state-qualified plans  in the states we reviewed included coverage for prescription drugs, and  the one plan that did not include such coverage offered it as an optional  benefit available for an additional premium charge. State-qualified plans in  three states we reviewed required a separate annual deductible for  prescription drugs, ranging from $100 to $250. State-qualified health plans  in five states we reviewed had annual benefit maximums for prescription  drugs, ranging from $500 to $3,000, and one plan did not provide any  coverage for brand-name drugs.
section_title: Appendix IV: Premiums Paid by Advance HCTC Enrollees
paragraphs: The cost of qualified health coverage for advance HCTC enrollees varied  considerably across states. Total monthly premiums—representing both  the individual and federal shares—were affected by the number of people  covered on each enrollee’s health plan and whether the advance HCTC  enrollee was a TAA recipient or a PBGC beneficiary (see table 15).  According to the HCTC program office, most advance HCTC enrollees  purchased coverage for a single individual or for an individual and one  other family member. On average, PBGC beneficiaries paid more for  qualified coverage than TAA recipients.
section_title: Appendix V: Amount Awarded for National Emergency Grants and High-Risk Pool Grants, by State, August 2004
section_title: Appendix VI: Comments from the Department of Labor
section_title: Appendix VII: Comments from the Internal Revenue Service
section_title: Appendix VIII: Comments from the Centers for Medicare & Medicaid Services
section_title: Appendix IX: Comments from the Pension Benefit Guaranty Corporation
section_title: Appendix X: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: The following staff made important contributions to this report: N. Rotimi  Adebonojo, JoAnne R. Bailey, Elizabeth T. Morrison, and Pamela N.  Roberto.
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