On health care policy, Members of Congress are once again at a fork in the road. The choice is simple. They can either help millions of displaced workers enroll in private health insurance, or they can enroll them in substandard government-run health care programs. If Members of Congress do nothing, and leave displaced workers and their families no viable alternative, they virtually guarantee yet another expansion of government health care programs.
Vehicles for Change.
The lead proposals to provide displaced workers with health
care assistance appear in the congressional economic stimulus
packages. The House of Representatives acted last month on its
economic stimulus package, and the Senate is considering its
version. Congress can reverse the current drift toward government
expansion and control of the health care system by enacting
positive health care policy as part of the broader debate on
assistance for displaced workers. Congress can provide displaced
workers with solid assistance that allows them to acquire private
health insurance for themselves and their families.
THE LEADING SENATE PROPOSALS
There are two competing proposals embodied in the economic stimulus legislation now before the Senate for coverage of displaced workers. Both are flawed.
Senator Max Baucus (D-MT), chairman of the Senate Finance Committee, proposes offering a partial subsidy for COBRA (Consolidated Omnibus Budget and Reconciliation Act) coverage for eligible workers and offering states assistance to extend Medicaid coverage to the remaining displaced worker population.
Senator Charles Grassley (R-IA), alternatively, offers states $3 billion in National Emergency Grants to provide income, training, and health care assistance to displaced workers. If a state government chooses to provide health care assistance, the funds are restricted to paying up to 75 percent of insurance premiums under COBRA. The Grassley plan also encourages states to utilize unused SCHIP (State Children's Health Insurance Program) funds.
Problems with the Leading Senate Proposals.
The leading Senate proposals all build upon conventional
government and corporate arrangements. For purposes of expanding
the kind of private health care coverage that individuals and
families want, they are both outdated and ineffective.
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The Problem with COBRA Exclusivity.
Both bills offer assistance for COBRA continuation coverage. However, COBRA coverage is a limited and costly proposition. Eligible employees consist of workers previously insured by their employer-sponsored coverage and willing to pay up to 102 percent of the premium. In addition, only employers with more than 20 employees are required to extend COBRA coverage to their former employees.
This is a serious limitation. In a recent Urban Institute survey, only 57 percent of all workers were potentially eligible for COBRA coverage. In addition, only 32 percent of workers with low incomes would have the option of COBRA coverage, and only 25 percent of those who have the COBRA option would be able to afford it. [1] Today, even with a partial subsidy, the remaining COBRA premium may still be prohibitive for an unemployed worker with no steady income. Therefore, COBRA assistance does not offer a practical solution to a large number of COBRA-qualified displaced workers. And, of course, it does nothing for those workers who are simply ineligible. - The Problem with Medicaid Expansion.
The Baucus bill offers state government officials the option of extending Medicaid to workers who do not qualify for COBRA coverage. This approach would create a two-tier health care system for displaced workers. Workers who would be eligible for COBRA would be given the opportunity to maintain their private health care coverage, while ineligible workers, or workers who cannot afford the costly COBRA coverage even with a subsidy, would be forced into Medicaid to get health coverage or, if they did not want to enroll in Medicaid, would simply go uninsured.
Using the Medicaid program for displaced workers and their families not only is an undesirable option for working families, given the poor quality of care that often accompanies Medicaid enrollment, but also compounds the Medicaid program's existing problems. Medicaid is in deep financial trouble. States are facing declining revenues and rapidly rising Medicaid costs. According to the National Governors' Association (NGA), "significantly declining revenues, coupled with job loss and increased demand for services, will leave states no choice but to cut spending or raise taxes." [2]
Congressional reliance on the financially troubled Medicaid program as a solution would also feed the state appetite for "free" federal money. NGA officials obviously want an economic stimulus package that will increase the federal share for Medicaid. With money tight at the state level, the prospect of additional federal funds is enticing. If states are finding it increasingly difficult to maintain current Medicaid benefits, congressional efforts to add displaced workers to the Medicaid rolls are hardly an exercise in fiscal responsibility. - The Problem with Block Grants.
The Grassley bill offers grants to states to assist with the various needs of displaced workers, including unemployment income, training, and health care assistance. Displaced workers need federal assistance immediately, especially to maintain continuity in their private health care coverage. Many of these workers have been struggling without health insurance for almost two months. New block grants may actually slow the process of assistance by adding yet another layer of agency bureaucracy at the state level to determine and develop a new system to distribute competing funds.
With block grants, there is always a risk. Block grants amount to one group of politicians at the federal level transferring funds to another group of politicians at the state level to spend these federally raised funds. The issue is how to ensure accountability in the spending of taxpayers' dollars and how to ensure the most efficient and effective use of that money.
Block grants can work. From the positive experience of the welfare reform of 1996, it is evident that the success of transferring federal funds to the states in the course of reforming the welfare system has been grounded in broad but clear guidelines for the use of this money and benchmarks to measure performance. In this situation, the key responsibility for Congress is to craft a block grant that would provide temporary assistance to these displaced workers while encouraging them to find jobs, assure that they get access to solid private insurance, and avoid the unpleasant prospect of having these workers and their families forced to wait until state agencies figure out how to distribute the federal assistance. If Congress chooses to enact a block grant solution, at a minimum, it should direct states to develop a plan that supports patient choice and private coverage.
THE BEST SOLUTION FOR DISPLACED WORKERS AND THEIR FAMILIES: PATIENT CHOICE AND PRIVATE COVERAGE
Congress should treat displaced workers equally and fairly. It should not discriminate among workers in such a way that some are provided access to private health insurance while others are compelled by force of circumstance and federal policy to enroll in the substandard Medicaid program. It is unfair to divide the displaced worker population into those with private coverage options and those without such options.
Instead, all displaced workers should receive assistance to purchase private coverage on their own. To give displaced workers the ability to purchase private health insurance, Congress can restructure its proposals and promote private health coverage for displaced workers. Any such restructured proposal should be guided by three basic principles.
- It should be equitable.
Each displaced worker should be offered the same assistance and opportunity to purchase private health care coverage. - It should be flexible.
Displaced workers should be allowed to use assistance to acquire any affordable health insurance option of their choice. - It should be effective.
Displaced workers should be given assistance that is timely and direct. Workers should not have to wait for state bureaucratic agencies to decide how best to distribute assistance.
Congress can support efforts to provide displaced workers with a
refundable tax credit for the purchase of private health care
coverage. A refundable tax credit gives all displaced workers the
same assistance. It provides an opportunity for the displaced
worker to choose an affordable private health insurance plan.
Finally, it ensures that the assistance is delivered to the worker
in a timely and predictable fashion.
Building on the Jeffords Proposal. Senator Jim Jeffords (I-VT) has introduced S. 1502, the COBRA Plus Act of 2001. This bill would create a refundable tax credit for displaced workers. Unfortunately, the Jeffords bill has one major structural flaw: It unnecessarily limits the credit's application to COBRA-only coverage. For many families, this limitation would amount to a denial of coverage. As previously noted, the effectiveness of a COBRA-only approach to health care assistance for displaced workers and their families is minimal.
By simply removing the COBRA limitation and allowing workers and their families to purchase the plans they think are best for them, the Jeffords proposal would become the best way to structure a displaced worker assistance program. Such a proposal would promote private health care coverage for all displaced workers.
Promoting Patient Choice and Private Coverage. Displaced workers, like all other Americans, should be given the opportunity to make their own health care coverage choices. Individuals and families best decide the type of health insurance coverage that best suits their individual and family needs, not by government bureaucrats or former employers.
Private health coverage does not have to be costly, like COBRA. In today's individual market, many families are able to find affordable coverage that can meet their personal medical needs. A recent eHealthInsurance study outlines what individuals and families can and do purchase in the individual health insurance market. The analysis is based not on what employers or health care benefit managers or health care policy analysts think, but on what real consumers actually purchased. The findings are instructive. First, policies were affordable. Individual policies range from $100 to $125 per month. Second, the coverage chosen tended to be more "comprehensive" rather than just "bare bones" and had modest deductibles. Finally, purchasers choose plans with less insurance management and greater individual choice, such as preferred provider options (PPOs). [3]
During these difficult times, losing a job is hard enough. Members of Congress do not have to make the situation worse by depriving displaced workers and their families of a sense of personal control over their lives. By establishing a new system of refundable tax credits for these displaced workers, Congress can return to them a sense of personal control, enabling them to obtain or maintain affordable health care coverage for themselves and their families.
CONCLUSION
Congress has a rare opportunity to change federal tax policy governing health insurance coverage. It can give displaced workers the assistance they need to acquire private health insurance for themselves and their families. It would also change the dynamics of current health care policy and establish patient choice and market competition in the provision of health insurance.
Unfortunately, the proposal offered by the Bush Administration and the economic stimulus package passed by the House are both flawed, as are the leading Senate proposals. As the Senate prepares to consider its economic stimulus package, Senators can do much better. They can establish a new and positive health care policy that offers displaced workers and their families meaningful assistance, personal choice, and control. They can help them acquire solid private health care coverage.
This is a great opportunity. It should not be missed.
Nina Owcharenko, Health Care Policy Analyst, The Heritage Foundation
1 Stephen Zuckerman, Jennifer Haley, and Matthew Fragale, "Could
Subsidizing COBRA Health Insurance Coverage Help Most Low-Income
Unemployed," Urban Institute, Health Policy Online No. 2, at http://www.urban.org/health/HPOnline.htm.
2 "Governors Seek Increase in Federal Share for Medicaid,"
National Governors' Association press release, November 7,
2001.
