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. 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. 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. 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. 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. 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. 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.