Private Health Insurance: Expiration of the Health Coverage Tax Credit Will Affect Participants' Costs and Coverage Choices as Health Reform Provisions Are Implemented
Published: 2012-12-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The HCTC pays 72.5 percent of health plan premiums for certain workers who lost their jobs due to foreign import competition and for certain retirees whose pensions from their former employers were terminated and are now paid by the Pension Benefit Guaranty Corporation. A small share of individuals who are potentially eligible for the HCTC participate. In 2010 there were 43,864 participants and 469,168 nonparticipants. The HCTC program will expire at the end of 2013 when premium tax credits and cost-sharing subsidies become available to eligible individuals who purchase health plans through health insurance exchanges under PPACA. PPACA also expands Medicaid eligibility to nonelderly individuals who meet specific income requirements to the extent that states choose to implement this provision. Therefore, the costs for health plans and coverage available to individuals potentially eligible for the HCTC will change when the HCTC expires.
This report examines (1) how the HCTCs expiration and the implementation of the PPACA premium tax credit, cost-sharing subsidies, and Medicaid expansion will affect HCTC participants and nonparticipants, and (2) how the coverage that will be available through the PPACA exchanges compares to HCTC participants health plan coverage. GAO analyzed 2010 HCTC program data and individual tax filer data. GAO also compared the services and actuarial values of the plans that will be available through the exchanges to HCTC plans.
section_title: What GAO Found
paragraphs: Expiration of the Health Coverage Tax Credit (HCTC) and implementation of Patient Protection and Affordable Care Act (PPACA) premium tax credits, cost-sharing subsidies, and Medicaid expansion will affect HCTC participants' costs for health plans in multiple ways. Projections from GAO's analysis of 2010 Internal Revenue Service (IRS) data show that most HCTC participants in 2014 will likely be eligible for less generous tax credits under PPACA than the HCTC. Specifically, about 69 percent of HCTC participants will likely be ineligible for either a PPACA premium tax credit or Medicaid, or they will likely receive a PPACA premium tax credit less generous than the HCTC. On the other hand, GAO's analysis also found that at least 23 percent will likely be eligible for PPACA premium tax credits more generous than the HCTC. In addition to the PPACA premium tax credit, up to 28 percent of all HCTC participants will likely be eligible for PPACA cost-sharing subsidies--subsidies that will help them pay for deductibles and copays--depending in part on whether or not their state expands Medicaid under PPACA. For HCTC nonparticipants, the projections from GAO's analysis of 2010 IRS data show that as many as 30 percent may be eligible for either Medicaid or a PPACA premium tax credit more generous than the HCTC in 2014, depending in part on whether or not their state expands Medicaid and whether they meet all other eligibility criteria for the PPACA premium tax credits.
In general, the health plan coverage that will be available through the PPACA exchanges will be comparable to coverage in HCTC participants' current plans; however, HCTC participants may have an incentive to choose plans through the exchanges that have different levels of coverage than their HCTC plans. Plans purchased through the PPACA exchanges will be required to provide essential health benefits--including coverage for specific service categories, such as ambulatory care, prescription drugs, and hospitalization--and most HCTC plans cover these categories of services. In addition, the vast majority of HCTC plans in 2012 likely had actuarial values--the expected percentage of costs that a plan will incur for services provided to a standard population--above the minimum actuarial value of 60 percent that health plans sold through the PPACA exchanges will be required to meet. However, because the PPACA premium tax credit amount will be based on a plan with an actuarial value of 70 percent, HCTC participants who currently have plans with either higher or lower actuarial values and are eligible for PPACA premium tax credits may have an incentive to choose plans that will have different levels of coverage than their HCTC plans. For example, those who have HCTC plans with actuarial values that are higher than 70 percent may have an incentive to shift to health plans with an actuarial value of 70 percent to avoid paying any difference in premiums that could result from choosing plans with higher actuarial values. Similarly, those who now have plans with actuarial values below 70 percent could have the opposite incentive and may purchase plans that offer a higher level of coverage than their current HCTC plans.
We provided draft copies of this report to the Department of Health and Human Services and IRS for review, and both provided technical comments, which we incorporated as appropriate.

section_title: Letter
paragraphs: The health coverage tax credit (HCTC) pays a share of health plan  premiums for certain workers who lost their jobs because of foreign  import competition and who are eligible for benefits in the Trade  Adjustment Assistance (TAA) program and for certain retirees age 55 and  over whose pensions from a former employer were terminated and are  now paid by the Pension Benefit Guaranty Corporation (PBGC). The  Trade Adjustment Assistance Reform Act of 2002 established the HCTC,  which is administered by the Internal Revenue Service (IRS). The Trade  Adjustment Assistance Extension Act of 2011 increased the HCTC from  65 percent to 72.5 percent of health plan premiums and also specified  that the HCTC program will expire at the end of 2013. Beginning   January 1, 2014, premium tax credits and cost-sharing subsidies— subsidies that will help individuals pay for out-of-pocket expenses such as  deductibles and copays—will become available under the Patient   These tax credits and  Protection and Affordable Care Act (PPACA).subsidies will help eligible individuals pay for the premiums and cost- sharing for health plans purchased through health insurance exchanges  created under PPACA. Effective January 1, 2014, PPACA also expands  eligibility for Medicaid to nonelderly individuals who meet specific income  requirements to the extent that states choose to implement this  provision. As a result, individuals who participate in or were potentially  eligible for the HCTC may be eligible for Medicaid when the HCTC  expires. The IRS will administer the PPACA premium tax credits and the  Department of Health and Human Services’ (HHS) Center for Consumer  Information and Insurance Oversight (CCIIO) will oversee the PPACA  exchanges and cost-sharing subsidies.
See GAO, Health Coverage Tax Credit: Participation and Administrative Costs,   GAO-10-521R (Washington, D.C.: Apr. 30, 2010). participating.participating was lack of affordability—such as being unable to afford to  pay for health plan premiums even with the credit. While HCTC  nonparticipants do not currently benefit from the HCTC, some may benefit  from PPACA. That is, some may have new incentives to obtain health  coverage under PPACA rules, for example if they are eligible for the  PPACA premium tax credit, and particularly if they are eligible for a credit  that is more generous than the HCTC. In addition, some nonparticipants  may be eligible for PPACA cost-sharing subsidies or become newly  eligible for Medicaid.
26 U.S.C. § 35(a), (e). hospitalization, prescription drugs, and emergency services. A plan will  be identified in each state that specifies what the EHB are for that state— this plan will be referred to as that state’s benchmark plan. In addition,  plans sold through the PPACA exchanges will be offered at four different  levels of coverage corresponding to a percentage of the full actuarial  value of plan benefits for EHB and designated by a different metal tier:   60 percent (bronze), 70 percent (silver), 80 percent (gold), and 90 percent  (platinum). For the purposes of this report, the term “coverage” includes  two elements: (1) the categories of services a plan covers; and (2) a  plan’s actuarial value, which we refer to as a plan’s level of coverage.
Because the HCTC will expire when the PPACA premium tax credit and  cost-sharing subsidies become available for health plans purchased  through the PPACA exchanges and the PPACA Medicaid expansion  takes effect, the costs for health coverage and the health plan options at  that time will change for individuals who are currently participating in or  who were potentially eligible for the HCTC. You asked us to examine  issues related to the expiration of the HCTC and its interaction with the  PPACA premium tax credit, cost-sharing subsidies, and expansion of  Medicaid. Specifically, this report addresses (1) How the expiration of the  HCTC and the implementation of the PPACA premium tax credit, cost- sharing subsidies, and Medicaid expansion will affect HCTC participants  and nonparticipants, and (2) how the coverage that will be available for  plans purchased through the PPACA exchanges compares to HCTC  participants’ HCTC-qualified health plans’ coverage.
To determine how the expiration of the HCTC and implementation of the  PPACA premium tax credit, cost-sharing subsidies, and Medicaid  expansion will affect HCTC participants and nonparticipants, we  analyzed 2010 IRS HCTC program data and individual tax filer data for  HCTC participants, which were the most current data available. For the  PPACA premium tax credit and the cost-sharing subsidies, we made  projections assuming that HCTC participants would meet many of the key  eligibility criteria—namely that they would not be eligible for Medicare or  Medicaid and would not be enrolled in health plans in which employers  paid for the majority of the premium amounts. Using these data, we  determined whether each HCTC participant would be eligible for a  PPACA premium tax credit on the basis of their household income and,  if eligible, estimated the amount of that PPACA premium tax credit. We  compared the estimated PPACA premium tax credit amounts to the  estimated HCTC amounts for each participant. We also calculated the  percentage of income in 2010 that HCTC participants paid for their share  of premiums after the HCTC was applied, and compared these amounts  to the estimated percentage of their income they will likely pay for  premiums with the PPACA premium tax credit assuming their incomes  would remain constant. We also used these data to estimate the  percentage of HCTC participants who will likely be eligible for PPACA  cost-sharing subsidies and the number and percentage of participants  who will likely be eligible for Medicaid, depending in part on whether or  not their state expands Medicaid. We excluded from our analyses any  participants and nonparticipants aged 65 or older at any point in 2010  because they would have likely been eligible for Medicare and therefore  ineligible for either the HCTC, a PPACA premium tax credit, or PPACA  cost-sharing subsidies. We conducted the same analyses for HCTC  nonparticipants as we did for the HCTC participants using 2010 IRS  data. However, we did not make the same assumption that most  nonparticipants would meet many of the key eligibility criteria for the  PPACA premium tax credit or cost-sharing subsidies because we could  not determine why these individuals did not participate in the HCTC. For  example, nonparticipants may have been enrolled in health plans paid for  by an employer, which would make them ineligible for a PPACA premium  tax credit or cost-sharing subsidy. In light of this, our ability to draw  conclusions based on our analysis of the data on HCTC nonparticipants  was more limited than it was for HCTC participants. We also reviewed  regulations, guidance, and selected literature on the PPACA premium tax  credit and cost-sharing subsidies. To determine the reliability of IRS’s  2010 HCTC program data and individual tax filer data, we reviewed  relevant documentation, conducted interviews with IRS officials  knowledgeable about the data, and conducted electronic testing of the  data to identify obvious errors or outliers. We determined that the data  were sufficiently reliable for purposes of this report.
To determine how the coverage that will be available through the PPACA  exchanges compares to the qualified health plans for HCTC participants  for each HCTC plan type—COBRA, HCTC state-qualified, VEBA, and  individual market—we compared the services that plans purchased  through the PPACA exchanges will cover, and actuarial values that plans  will be offered at through the exchanges, to the services and actuarial  values of HCTC-qualified plans. Since COBRA plans are an extension of  employer-sponsored health plans, we based our comparison on existing  data on the services covered by, and the actuarial values of, employer- sponsored health plans. For HCTC state-qualified plans, we used 2011  IRS HCTC program data to select a nongeneralizable sample of four  states to compare the services covered by the plans that will likely be  available through the PPACA exchanges in those states, and the  actuarial values at which plans will be offered through the exchanges, to  the services covered by and the actuarial values of, selected HCTC state- qualified plans. The four states selected—California, Michigan, North  Carolina, and Ohio—were among the states with the largest number in  2011 of both individuals potentially eligible for the HCTC and HCTC  monthly participants; were geographically varied; and offered different  types of HCTC state-qualified plans. In each state we identified the  state’s likely EHB benchmark plan and the HCTC state-qualified plan with  the largest enrollment for our comparison. In California and Michigan we  used the benchmark plans that those states selected, and in the other two  states we used the largest small group health plan in each state as the  potential exchange benchmark plan because HHS has proposed this as  the default exchange benchmark if the state does not choose a  benchmark plan. In certain states, choosing an existing small group  health plan as a benchmark may lead to lower costs for the state than if it  chose a different plan. In the four states, we reviewed health plan  documents and interviewed health plan officials from the four potential  exchange benchmark plans and the four selected HCTC state-qualified  plans. For VEBA plans, we analyzed the HCTC data from the selected  states to identify the VEBA plan that had the largest number of HCTC  participants. We reviewed health plan documents and interviewed health  plan officials for the selected VEBA plan and compared the services  covered by the potential exchange benchmark for the state that contained  the majority of the VEBA plan’s HCTC enrollees to the services covered  by the VEBA plan. We also compared the actuarial values at which plans  will be offered through the exchanges to the actuarial value of the VEBA  plan. For individual market plans, we used available data on this type of  plan to compare the services covered by, and the actuarial value of,  plans purchased through the PPACA exchanges to individual market  plans. We also reviewed regulations and guidance on EHB, actuarial  value, and other insurance market reforms that may affect premiums and  cost-sharing in 2014. To determine the reliability of IRS’s 2011 HCTC  program data, we reviewed relevant documentation, interviewed officials  knowledgeable about the data, and conducted electronic testing of the  data to identify obvious errors or outliers. To assess the reliability of the  available data on employer-sponsored health plans and individual market  health plans, we reviewed the methodologies used to collect and report  these data. Using these methods, we determined that the data were  sufficiently reliable for the purposes of this report.
We conducted this performance audit from November 2011 to November  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The HCTC, which pays a portion of health plan premiums for certain  eligible workers and retirees, is set to expire at the end of 2013 when  certain PPACA provisions, including PPACA premium tax credits, cost- sharing subsidies, and expansion of Medicaid eligibility, are implemented.
The HCTC program is administered by the IRS and currently pays for  72.5 percent of health plan premiums for HCTC participants. The amount  of the credit is based solely on the participant’s health plan premium  amount and is not based on other factors, such as the participant’s  income. As an example of the credit, an HCTC participant with an annual  premium of $10,000 would receive a credit of $7,250. Individuals  potentially eligible for the HCTC include manufacturing and service  workers who lost their jobs due to foreign import competition and were  eligible for TAA benefits (representing about 51 percent of all potentially  eligible individuals), and certain retirees between the ages of 55 and 64  whose pensions from a former employer were terminated and are now  paid by the PBGC (representing about 47 percent of all potentially eligible  individuals).
We have previously reported that many potentially eligible individuals do  not participate in the HCTC program. In 2010, less than 10 percent of  those potentially eligible for the program participated in the HCTC (see  table 1). Some of the potentially eligible individuals may in fact not be  eligible for the HCTC, for example if they are eligible for Medicare or  Medicaid, or if they are covered by their spouse’s employer-sponsored  health plan under certain conditions. Others may choose not to  participate, for example if even with the HCTC they still cannot afford the  cost of their share of health plan premiums.
HCTC participants obtain coverage from HCTC-qualified health plans,  which include COBRA plans, HCTC state-qualified plans, VEBA   plans, and individual market plans. In 2011, the majority of HCTC  participants received coverage from COBRA plans (46 percent) or HCTC  state-qualified plans (37 percent). A smaller proportion of HCTC  participants received coverage from VEBA plans (10 percent) or  individual market plans (1 percent).
subsections: section_title: Selected PPACA Provisions
paragraphs: Beginning on January 1, 2014, a premium tax credit will be available to  help eligible tax filers and their dependents pay for qualified health plans  purchased through the PPACA exchanges, to be administered by the  IRS. PPACA premium tax credits will be calculated using income  reported on tax returns.tax filers and their dependents who are (1) enrolled in one or more  qualified health plans through a PPACA exchange, and (2) not eligible for  minimum essential coverage other than coverage in the individual   The credits will generally be available to eligible  market. For example, individuals would not be eligible if they had  coverage in a government program, such as Medicare or Medicaid, or  certain employer-sponsored coverage.
Tax filers eligible for PPACA premium tax credits will be those with  household incomes from 100 percent to 400 percent of the federal  poverty level (FPL) for the tax year in which they are receiving the  PPACA premium tax credit. The amount of the PPACA premium tax  credit will vary by household income level, family size, and other factors.  It will subsidize a portion of the tax filer’s health insurance premiums.  The tax filer’s contribution to premiums will be based on their household  income relative to the FPL, and will range from 2 percent of their  household income for those with household incomes from 100 percent to  less than133 percent of the FPL, to 9.5 percent of household income for  those with household incomes from 300 percent up to 400 percent of the  FPL (see table 2).
Eligibility for PPACA premium tax credits by household income level  based on the FPL may vary by state because states may choose not to  expand eligibility for Medicaid to nonelderly individuals whose household  income does not exceed 133 percent of the FPL.rule, tax filers with household incomes from 100 percent of the FPL and  up to 400 percent of the FPL will be eligible for PPACA premium tax  credits. However, also under the PPACA rule, in states that expand  Medicaid, individuals with household incomes from 100 percent and up to  138 percent of the FPL will be eligible for Medicaid and therefore  ineligible for PPACA premium tax credits. Further, in states that do not  expand Medicaid, individuals with household incomes from 100 percent  and up to 400 percent of the FPL will be eligible for PPACA premium tax  credits, and individuals with household incomes less than 100 percent of  the FPL will not be eligible for PPACA premium tax credits and may not   Under the PPACA  be eligible for Medicaid, depending on their states’ Medicaid eligibility  criteria.
The applicable household income level expressed as a percent of the  FPL determines an individual’s share of his or her annual premium. The  amount of the premium for the second-lowest-cost silver plan in the  PPACA exchange available in the state where the eligible individual  resides will be the reference for calculating the amount of the PPACA  premium tax credit. tax credit for two different people, both in a family of four, one with a  household income at 150 percent of the FPL, and the other with a  household income at 300 percent of the FPL, using a hypothetical annual  premium of $10,000 for the second-lowest-cost silver plan (reference  plan) in the PPACA exchange available in the state where they reside.
section_title: When the HCTC Expires Most HCTC Participants Will Likely Be Ineligible for a PPACA Premium Tax Credit or Eligible for a Credit Less Generous Than the HCTC
paragraphs: The expiration of the HCTC and implementation of the PPACA premium  tax credits and Medicaid expansion will affect HCTC participants’ costs  for health plans in multiple ways. Projections from our analysis of 2010  IRS data show that about 69 percent of HCTC participants will likely  either be ineligible for a PPACA premium tax credit or Medicaid, or will be  eligible for a PPACA premium tax credit that is less generous than the  HCTC. These projections show that about 37 percent of HCTC  participants will likely be ineligible for either a PPACA premium tax credit  or Medicaid because their incomes are too high, and 32 percent will be  eligible for a PPACA premium tax credit less generous than the HCTC.  On the other hand, at least 27 percent of HCTC participants will be  eligible for a PPACA premium tax credit more generous than the HCTC or  be eligible for Medicaid. An additional 3 percent of all participants will  likely be ineligible for a PPACA premium tax credit because their incomes  are too low, and their eligibility for Medicaid will depend in part on their  state’s decision on Medicaid expansion (see table 4).
For the HCTC participants who will likely be eligible for a PPACA  premium tax credit in 2014, projections from our analysis of 2010 IRS  data show that there will be variation in the extent to which their credit  differs from the HCTC. For example, of the total 39,464 HCTC  participants in our analysis, 6,492 will likely receive a PPACA premium  tax credit at least 25 percent less than the HCTC. However, up to 12,141  participants will likely receive a credit similar to or greater than the HCTC.  For example, 2,922 participants will likely receive a PPACA premium tax  credit of about the same value as the HCTC (within 5 percentage points  above or below the HCTC). In addition, depending in part on whether or  not their state expands Medicaid, between 1,823 and 3,217 participants  will likely receive a credit more than 25 percent higher than the HCTC  (see fig. 1).
The PPACA premium tax credit was designed to provide a larger subsidy  amount to lower-income tax filers than to higher-income tax filers. Thus,  lower-income HCTC participants who will likely be eligible for a PPACA   will pay a smaller share of their incomes for  premium tax creditpremiums under PPACA in 2014 than they did under the HCTC.
For example, projections from our analysis of 2010 IRS data show that  while all 2,488 HCTC participants with incomes from 100 percent to   150 percent of the FPL will likely pay between 2 percent and 4 percent of  their incomes for health plan premiums under the PPACA rule, 1,456  HCTC participants—close to 60 percent of participants in the same  income range—paid 9.5 percent or more of their incomes for health plan  premiums under the HCTC. In contrast, while all 7,658 HCTC participants  with incomes from 300 percent to 400 percent of the FPL will likely pay  9.5 percent of their household income for premiums under the PPACA  rule, 2,391—over 30 percent of participants in the same income range— paid less than 4 percent of their household income for premiums under  the HCTC (see fig. 2). Unlike the HCTC that pays 72.5 percent of health  plan premiums, individuals eligible for a PPACA premium tax credit will  continue to pay that set percentage even if premiums increase because  PPACA rules limit the amount individuals will pay for premiums to a set  percentage of their incomes.
The expiration of the HCTC and implementation of PPACA cost-sharing  subsidies will also affect HCTC participants’ out-of-pocket costs for health  plans. Projections from our analysis of 2010 IRS data show that up to   28 percent of all HCTC participants who are eligible for the PPACA  premium tax credit will likely also be eligible for a PPACA cost-sharing  subsidy in 2014 to help pay for deductibles and copays, depending in part  on whether or not their state expands Medicaid. Similar cost-sharing  subsidies are not available for the HCTC, therefore, this would be an  additional financial benefit for those who qualify.
The effect of the expiration of the HCTC and implementation of certain  PPACA provisions will likely be different for nonparticipants—individuals  who were potentially eligible for the HCTC in 2010 but did not participate  in it—than it will be for participants. First, nonparticipants who may not be  eligible for PPACA premium tax credits or who may be eligible for tax  credits less generous than the HCTC will not be losing any benefits  because they are not receiving the HCTC. Our projections show that   70 percent of nonparticipants fall into this category. Second, because  some individuals do not participate in the HCTC since they cannot afford  to do so, some nonparticipants who will be eligible for PPACA premium  tax credits that are more generous than the HCTC or who are eligible for  Medicaid coverage under PPACA may choose to use these options and  receive benefits they do not receive under the HCTC. Our projections  show that up to 30 percent of nonparticipants fall into this category,  depending in part on whether or not their state expands Medicaid and  whether they meet all other eligibility criteria for the PPACA premium tax  credits.
In addition to being eligible for the PPACA premium tax credit, based on  projections from our analysis of 2010 IRS data, up to 30 percent of all  HCTC nonparticipants may also be eligible for a PPACA cost-sharing  subsidy in 2014 to help pay for deductibles and copays, depending in part  on whether or not their state expands Medicaid and whether they meet all  other eligibility criteria for the PPACA premium tax credits.
See appendix I for details on characteristics of 2010 HCTC participants  and nonparticipants.
section_title: Health Plan Coverage under PPACA Will Be Comparable to HCTC Plans, but Participants May Have an Incentive to Change Their Level of Coverage
paragraphs: The health plan coverage available under PPACA will be comparable to  coverage in current HCTC-qualified health plans. Specifically, the  categories of services that plans purchased through the PPACA  exchanges will be required to cover are comparable to those currently  covered by most HCTC plans, and the actuarial values of HCTC plans  are likely above the minimum level of coverage that will be required in  PPACA exchange plans. However, under PPACA, HCTC participants  may have an incentive to choose plans through the exchanges that have  different levels of coverage than their HCTC plans.
subsections: section_title: The Categories of Services That Will Be Required for Plans Purchased through the PPACA Exchanges Are Comparable to the Categories of Services Currently Covered by HCTC Plans
paragraphs: The EHB categories that will be required for plans purchased through the  PPACA exchanges are comparable to the categories of services covered  in almost all of the health plans used now by HCTC participants.  Specifically, the categories covered by COBRA plans as well as the four  HCTC state-qualified plans and the VEBA plan that we reviewed are  comparable to the EHB categories. Collectively, at least 93 percent of  HCTC participants in 2011 were enrolled in these three types of HCTC  plans. However, for two of the EHB categories—”rehabilitative and  habilitative services and devices” and “pediatric services, including oral  and vision care”—more services may be covered by the plans purchased  through the PPACA exchanges than are covered by the COBRA, HCTC  state-qualified, and VEBA plans. This is because many health plans,  whether HCTC or other, do not currently cover habilitative services or  pediatric dental and vision services. While not all of the EHB categories  are covered by individual market plans, only about 1 percent of HCTC  participants are covered by individual market plans.
COBRA plans (46 percent of HCTC participants). COBRA plans are an  extension of employer-sponsored health plans, and our analysis of data  reported in a 2011 Department of Labor report found that employer- sponsored health plans generally covered services in the EHB  categories. For example, in the EHB category of ambulatory care,   100 percent of employer-sponsored health plans cover physician office  visits; 98 percent of plans cover outpatient surgery; and 73 percent of  plans cover home health care services. In addition, the report indicated  that the majority of employer-sponsored health plans cover services in the  EHB categories of hospitalization, emergency services, maternity care,  mental health and substance abuse disorders, and prescription drugs.  Although COBRA plans generally cover services in the EHB categories, it  is possible that coverage of habilitative services and pediatric dental and  vision services will be more generous in plans purchased through the  PPACA exchanges than in COBRA plans. According to CCIIO, the EHB  categories that are commonly not covered among typical employer plans  are habilitative services, pediatric oral services, and pediatric vision  services.
HCTC state-qualified plans (37 percent of HCTC participants). Our  analysis of four 2012 HCTC state-qualified plans found that they also  generally covered services in all of the EHB categories. Specifically, all of  the plans we reviewed—including both the four potential exchange  benchmark plans and the four HCTC state-qualified plans—covered  services in the same EHB categories, such as ambulatory care,  preventive care, laboratory services, hospitalization, and emergency  services. In addition, all of the plans covered prescription drugs to some  extent; although one of the HCTC state-qualified plans that we reviewed  covered generic prescriptions but did not cover brand-name prescriptions.  Among some of the HCTC state-qualified plans and the potential  benchmark plans there was an absence of coverage for subsets of  services in certain EHB categories, such as habilitative services and  pediatric dental and vision services, which are services that will be  required to be covered in plans sold through the PPACA exchanges. For  example, habilitative services were not covered by two of the potential  exchange benchmark plans or by three of the HCTC state-qualified  plans.
VEBA plans (10 percent of HCTC participants). The potential  exchange benchmark plans cover the same EHB categories that the 2012  VEBA plan that we reviewed does. Also, like some of the potential  exchange benchmark plans, the VEBA plan does not cover certain  services that are a subset of certain EHB categories, such as habilitative  services.
Individual market plans (1 percent of HCTC participants). Plans  purchased through the PPACA exchanges may provide coverage of EHB  categories in which coverage may be more limited in individual market  plans. In 2011, HHS reported that coverage of certain EHB categories is  limited in individual market plans, specifically for maternity services,  substance abuse services, mental health services, and prescription  drugs.in individual market plans.
section_title: HCTC Plans’ Actuarial Values Are Likely above PPACA’s Minimum Level of Value
paragraphs: The vast majority of HCTC participants in 2012 were likely enrolled in  plans with actuarial values that were above the minimum level of   60 percent (bronze) required for plans purchased through the PPACA  exchanges, including many who were likely enrolled in plans that had  actuarial values of 80 percent (gold) or higher.
COBRA plans (46 percent of HCTC participants). The majority of  HCTC participants in COBRA plans are likely to be in plans with actuarial  values of 80 percent or higher on the basis of data from two studies. One  study estimated that 80 percent of all enrollees in employer-sponsored  health plans in 2010 were in plans that met or exceeded 80 percent  (gold). The other study estimated that about 65 percent of all employees  enrolled in group health plans in 2010 were in plans with actuarial values  that met or exceeded 80 percent (gold).
HCTC state-qualified and VEBA plans (47 percent of HCTC  participants combined). The actuarial values of the four HCTC state- qualified plans and the one VEBA plan that we reviewed in the selected  states vary. However, all of the plans have an actuarial value of at least  60 percent (bronze) and three of the five plans have an actuarial value of  80 percent (gold) or higher. See table 5.
Individual market plans (1 percent of HCTC participants). The small  number of HCTC participants that have individual market plans are likely  to have a plan with a lower level of actuarial value. A recent study found  that about half of the plans (51 percent) in the individual market have an  actuarial value of less than 60 percent and another third (33 percent)  have an actuarial value at the 60 percent (bronze) level.
section_title: Certain PPACA Provisions May Incentivize HCTC Participants to Change Their Level of Coverage in 2014
paragraphs: The varied actuarial values of the HCTC plans suggest that the level of  coverage for many HCTC participants may change after the expiration of  the HCTC depending on the options available to participants and the  choices they make in 2014 under PPACA. Also, the way that the PPACA  tax credits will be calculated may incentivize HCTC participants to change  their level of coverage. The PPACA premium tax credits will be  calculated from a reference plan at the 70 percent (silver) level of  coverage, so individuals who choose other plans—with either higher or  lower levels of actuarial value—could face higher or lower out-of-pocket  costs for premiums. However, plans with higher levels of actuarial value  may result in lower out-of-pocket costs for copays and deductibles, and  plans with lower levels of actuarial value may result in higher out-of- pocket costs for copays and deductibles. Ultimately, for any HCTC  participant, the overall financial effect of a change from an HCTC plan to  a PPACA exchange plan will be the net effect of the choice between  higher or lower premium costs and higher or lower cost-sharing.  Further, out-of-pocket costs for premiums and cost-sharing for HCTC  participants will be affected by whether they are eligible for the PPACA  premium tax credits and cost-sharing subsidies. Considering these  factors, current HCTC participants may choose to change their level of  coverage when the HCTC expires. For example:
Some HCTC participants eligible for PPACA premium tax credits  could have an incentive to change to a higher level of coverage.  For example, if the HCTC participants who have coverage at the   60 percent (bronze) level of coverage are eligible for PPACA premium  tax credits, they may choose a PPACA exchange plan that has a  higher actuarial value than their current HCTC plan. This is because  PPACA premium tax credit amounts will be calculated on the basis of  the reference plan premium (the second-lowest-cost 70 percent   plan) for their exchange. Given this, it could be possible for  these HCTC participants to purchase a 70 percent (silver) plan that  would have on average lower out-of-pocket cost-sharing expenses  than their current HCTC plan.
Alternatively, some HCTC participants who will be eligible for  PPACA premium tax credits could have an incentive to change to  a lower level of coverage. For example, if the HCTC participants  who have coverage at the 80 percent (gold) or 90 percent (platinum)  levels of coverage are eligible for a PPACA premium tax credit and  want to purchase a plan through a PPACA exchange with a  comparable actuarial value, they will have to pay the difference  between the premium for a plan with an actuarial value of 80 percent  (gold) or 90 percent (platinum) and their PPACA premium tax credit.  Again, this is because the PPACA premium tax credit amount will be  based on the reference plan premium (the second-lowest-cost   70 percent  plan) for their exchange. For example, if a  participant in a family of four with a household income at 300 percent  of the FPL purchases a plan in a PPACA exchange with an annual  reference (silver) plan premium for a family of four of $10,000, he or  she would receive a PPACA premium tax credit of $3,716 and would  have to pay $6,284 for the premium if he or she purchased the  reference plan. However, if the participant instead decided to  purchase a plan with an actuarial value of 80 percent (gold) having an  annual premium of $11,000, the PPACA premium tax credit would  remain the same ($3,716) but the premium amount the participant  would have to pay would increase by $1,000 to $7,284. Because  participants would have to pay this difference in premiums, they may  opt to purchase a plan with a lower level of actuarial value than their  current plan, such as a plan at the 70 percent level of coverage  (silver), even though it may have higher out-of-pocket cost-sharing  expenses on average than their current plan. In contrast, HCTC  participants may also have an incentive to choose a plan below the 70  percent (silver) level if obtaining the lowest possible premium is their  main factor in choosing a health plan. In this case, participants could  choose a plan at the 60 percent (bronze) level of coverage because  the premium cost would likely be lower than choosing a   70 percent (silver) level plan. However, a plan at this level would  mean that on average participants could have higher out-of-pocket  cost-sharing expenses than they would with a 70 percent (silver) plan.
The health plan coverage options for HCTC participants not  eligible for a PPACA premium tax credit will vary depending on  their household income level. The HCTC participants’ not eligible  for PPACA premium tax credits because their incomes are above   400 percent of the FPL could decide to purchase a health plan at any  level of coverage. However, the loss of the HCTC combined with their  ineligibility for PPACA premium tax credits because of their higher  incomes could affect the level of coverage that they choose or even  whether they purchase a health plan through a PPACA exchange or  elsewhere. The HCTC participants who have household incomes  below 138 percent of the FPL and live in states that expand Medicaid  will not be eligible for PPACA premium tax credits; instead they will be  eligible for Medicaid. However, in states that do not expand Medicaid,  it is uncertain what health plan, if any, that HCTC participants who  have household incomes below 100 percent of the FPL may purchase  in 2014. These individuals would not be eligible for PPACA premium  tax credit in any instance or Medicaid in most instances, and their  ability to pay for premiums will be limited. However, because of their  low incomes, these HCTC participants will likely be exempt from  certain PPACA provisions, such as the tax penalty that individuals will  have to pay beginning in 2014 if they do not have a health plan.
section_title: Agency Comments
paragraphs: We provided draft copies of this report to HHS and IRS for review, and  both provided technical comments, which we incorporated as appropriate.
As arranged with your offices, unless you publicly announce the contents  of this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of the  Treasury and the Commissioner of the IRS, the Secretary of Health and  Human Services, appropriate congressional committees, and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs are on the last page of this  report. GAO staff who made major contributions to this report are listed in  appendix II.
section_title: Appendix I: Characteristics of Health Coverage Tax Credit (HCTC) Participants and Nonparticipants in 2010
paragraphs: We identified HCTC participants and nonparticipants by age groups,  household income based on a percentage of the federal poverty level  (FPL), and HCTC eligibility type using 2010 Internal Revenue Service  (IRS) data. We found that most HCTC participants and nonparticipants  were ages 55 to 64 (see table 6), over a third of participants and  nonparticipants had household income greater than 400 percent of the  FPL (see table 7), and more than half were potentially eligible for the  HCTC because of participation in the Trade Adjustment Assistance (TAA)  or Reemployment Trade Adjustment Assistance (RTAA) programs rather  than being eligible by having their pension payments assumed by the  Pension Benefit Guaranty Corporation (PBGC) (see table 8).
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Gerardine Brennan, Assistant  Director; George Bogart; Andrew Ching; Sandra George; Alison Goetsch;  Lisa A. Lusk; John Mingus; and Laurie Pachter made key contributions to  this report.
section_title: Related GAO Products
paragraphs: Trade Adjustment Assistance: Changes to the Workers Program  Benefited Participants, but Little Is Known about Outcomes. GAO-12-953.  Washington, D.C.: September 28, 2012.
Medicaid Expansion: States’ Implementation of the Patient Protection and  Affordable Care Act. GAO-12-821. Washington, D.C.: August 1, 2012.
Health Coverage Tax Credit: Participation and Administrative Costs.  GAO-10-521R. Washington, D.C.: April 30, 2010.
Health Coverage Tax Credit: Simplified and More Timely Enrollment  Process Could Increase Participation. GAO-04-1029. Washington, D.C.:  September 30, 2004.