Starting August 1, 2003, displaced trade workers will be able to access a federal health care tax credit worth 65 percent of a qualified health plan's cost. However, the credit - made possible when the Trade Adjustment Assistance (TAA) Act passed in 2002 - strictly defines what constitutes qualified health care coverage into four categories.

Congress should fix this unintended consequence immediately and expand health care coverage options so eligible workers and their families have access to all coverage options.

TAA Unintended Consequence

Provisions were included in TAA to provide, through a health care tax credit, financial assistance to qualified TAA workers and certain Pension Benefit Guaranty Corporation (PBGC) beneficiaries to help them obtain health care coverage during their period of unemployment.

Strictly defining what constitutes qualified health care coverage will result in some workers possessing a generous tax credit but no coverage to which to apply it.

Under the provisions of the law, there are four categories of "qualified coverage options" to which workers could apply their credit. They are:

• COBRA coverage;
• A spouse's employer-based coverage;
• An individual policy (with strict exclusions); and
• State-based coverage.

Gaps In Credit Qualification

While well-intentioned, however, these coverage options are not accessible to all workers. There are a variety of reasons why workers would not qualify for the specified coverage options and, therefore, would have nowhere to apply their credit.

1. COBRA coverage. COBRA coverage refers to a provision in the Consolidated Omnibus Budget and Reconciliation Act of 1986 that allows a worker to maintain coverage through his or her former employer, provided (1) that the employer has more than 20 employees and (2) that the employee is willing to pay for the full cost of the policy (both the employer's share and the employee's share, plus a 2 percent administrative fee). Such an option sounds reasonable. However, some of these tax-credit workers did not work for an employer with 20 or more employees and, therefore, do not qualify for COBRA. Furthermore, for those workers who do qualify, COBRA coverage can be extremely expensive. The average cost of employer-sponsored coverage in 2002 was $255 per month for an individual and $663 per month for family coverage.[1] Even with a 65 percent credit, an individual on a limited and fixed unemployment income may find it difficult to make ends meet.

2. Spouse's employer-based coverage. In this case, there are several instances where a worker may not qualify for spousal coverage: (1) when workers do not have a spouse, (2) when their spouse does not work, or (3) when their spouse's employer does not provide health care coverage. Again, this leaves many tax credit-eligible workers without a qualified coverage option.

3. Individual policy. As briefly mentioned above, individual policies are available for application of the tax credit. However, in order for an individual to apply the credit to an individual policy, the worker must prove that he or she obtained the coverage 30 days prior to being laid off. That provision in itself severely limits the number of tax-credit workers who could apply their credit to this qualified coverage option. It seems unlikely that many workers would have the foresight to purchase a second, individual policy a month before termination.

4. State-based coverage. It seems that Members of Congress recognized the limitations of the first three options when they decided to include a state-based coverage option. States, at their discretion, are able to select from a menu of state-based coverage options (that must meet specific regulatory requirements)[2] to offer the tax-credit workers in their states. While some states have made progress in this area, there are states that may not be able to meet the August 1 starting date. Therefore, tax credit-eligible workers would remain without a qualified coverage option to which they could apply their credit.

Filling in the Gaps; Broadening Access

As noted above, not all workers qualify for the congressionally designated coverage options. Therefore, Congress should allow workers who do not qualify or choose not to participate in the congressionally designated coverage options to apply their credit to coverage of their own choice. At a minimum, Congress should allow workers whose states have not acted by the August 1 starting date to use their credit for a policy they obtain on their own.

This is another health care debate over personal choice. At issue is whether individuals should be prevented from using the credit outside the congressionally designated options for fear that those individuals would not have the "protections" imposed on policies through the regulatory requirements. However, the more serious issue is whether these workers and their families will have access to all, not just congressionally determined, coverage options or will remain further at risk by staying uninsured. Congress should act now to ensure that all displaced workers eligible for the health care tax credit are able to use their credit to secure the coverage of their choice for themselves and their families.

[1]Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits 2002, Henry J. Kaiser Family Foundation, Menlo Park, California, 2002, p. 13.
[2]These regulatory requirements include guaranteed issue, pre-existing condition exclusions, nondiscriminatory benefits, and similarly situated benefits.