TASK FORCE ON THE FUTURE OF HEALTH INSURANCE Issue Brief APRIL 2004 Health Coverage Tax Credits Under the Trade Act of 2002 Stan Dorn and Todd Kutyla Economic and Social Research Institute F For more information about this study, please contact: ederal income tax credits intended for the purchase of health Stan Dorn, J.D. insurance coverage have, perhaps more than any other policy Senior Policy Analyst element, repeatedly surfaced in proposals offered by both Economic and Social Research Institute Democrats and Republicans to address the steady increase in the num- Tel 202.833.8877 ext. 14 ber of uninsured Americans.The new system of Health Coverage Tax Fax 202.833.8932 E-mail sdorn@esresearch.org Credits (HCTCs) established under the Trade Act of 2002, the United or States’ first experiment in roughly a decade with fully refundable and Jennifer N. Edwards, Dr.P.H. advanceable federal income tax credits for health insurance, offers a Deputy Director,Task Force on the Future of Health Insurance tremendous opportunity to learn whether such credits can be effective The Commonwealth Fund and, if so, how they can best be structured. Tel 212.606.3835 Fax 212.606.3500 In studying the progress made in implementing the Act’s provi- E-mail je@cmwf.org sions through the end of 2003, we have noted important successes as well as potential weaknesses that may require correction. Officials have done a remarkable job establishing the federal and state infrastructure for the new program, and beneficiaries in many states are offered numerous coverage options from which to choose. On the other hand, take-up of the tax credits has been quite limited thus far; many HCTC health plans treat beneficiaries very differently based on their Additional copies of this (#721) and other Commonwealth Fund age, gender, and prior health history; and the new program’s adminis- publications are available online at trative costs may be quite high (although some such costs involve nec- www.cmwf.org To learn about new Fund essary infrastructure development rather than ongoing operational publications when they appear, visit expenses). It bears considerable emphasis that, roughly six months after the Fund’s website and register to the start of advance payment, it is far too soon to come to any conclu- receive e-mail alerts. sions about the success or failure of HCTCs. Nevertheless, it is already clear that Trade Act health coverage is likely to teach policymakers The Nathan Cummings Foundation provided partial important lessons about the viability and potential design features of support for this project. tax credits that could cover a much larger group of uninsured Americans. 2 The Commonwealth Fund BACKGROUND plans cannot receive funding from Medicaid or During the current presidential campaign, President the State Children’s Health Insurance Program. Bush and all but one of the Democratic candidates Based on a statutory interpretation adopted by who have issued detailed health reform plans have the Bush administration over the objections of proposed health insurance tax credits. However, some key lawmakers, such plans may include except for a brief and unhappy experience with nongroup insurers for any HCTC enrollee. child health insurance tax credits in the early 1990s, Fully refundable, HCTCs are available to federal income tax credits to cover the uninsured workers of any income level, including those who have existed in theory only.That changed on August owe little or no federal income tax. Rather than 6, 2002, when President Bush signed into law the waiting to claim HCTCs on end-of-the-year tax Trade Act of 2002.The HCTCs created by this returns, beneficiaries can arrange for the advance legislation pay 65 percent of the cost of health payment of HCTCs to their health insurers when insurance premiums for a small group of displaced monthly premiums are due. workers and early retirees. Eligible for these HCTCs are approximately 200,000 to 300,000 workers PRELIMINARY FINDINGS (and their dependents) in two general categories: This brief (and the accompanying full report) Workers certified by the Department of Labor draws on dozens of interviews with stakeholders as displaced by international trade, who either and policymakers, a review of relevant documents, receive Trade Adjustment Assistance (TAA) cash and a survey of health plans offered to HCTC payments or who would qualify for such pay- beneficiaries in 15 states. Our main findings are ments but for their receipt of unemployment discussed below. insurance; and Successful Infrastructure Development Early retirees age 55 to 64 who receive pension Federal officials have made tremendous progress payments from the Pension Benefit Guaranty establishing this new program. By the statutory Corporation, a federal corporation that assists due date of August 1, 2003 (less than a year after retirees from certain companies that no longer the Trade Act was signed into law), the interagency pay promised pensions because of bankruptcies HCTC team and its contractors had up and run- or other reversals. ning a federal–state–private system for making HCTCs may be used to purchase qualified advance payments to insurers, relying primarily on policies, which fall into two major categories:1 electronic exchange of information and payments. No similar payment system has ever existed before. COBRA insurance, which allows former The HCTC team has had to overcome employees to remain in health plans offered by more than the inevitable difficulties of pulling their previous employer. HCTCs may be used to together an effective interagency collaboration enroll in this coverage anywhere in the country, involving multiple cabinet level departments.The without any need for state action. Under federal tasks involved were novel and complex, and each law in effect for more than a decade, employers agency on the HCTC team was simultaneously that insure their workers and have 20 or more addressing other major challenges related to its employees must offer COBRA coverage to cer- core mission. tain laid-off workers and their families. This work resulted in accomplishments at Health plans that states make available through the state as well as the national level. By the end of arrangements with particular insurers. Such 2003, state-based coverage was available in 26 states Health Coverage Tax Credits Under the Trade Act of 2002 3 and the District of Columbia, jurisdictions that annual premium payments of only $508, on aver- together included three-fourths of all projected eli- age, for single coverage available from their gible workers in the country (Table 1, pages 8–9).2 employers. HCTCs thus presuppose that many Not only has this program been established workers will pay more for health insurance pre- faster and in a wider geographic area than many cisely when unemployment causes family income expected, HCTC officials have often been nimble to fall by an average of 40 percent. and creative in developing effective policy. For Some early evidence suggests that, in fact, example, officials used grants from the Department many low-income workers who are potentially of Labor to pilot-test advance-payment systems in eligible for HCTCs may be declining the credits. two states before August 2003, and advance-pay- For example, in Maryland, half of Bethlehem ment mechanisms have been simplified several Steel’s Pension Benefit Guaranty Corporation times to save administrative costs and to prevent retirees have pensions under $10,780 a year. Only consumer mistakes from placing coverage at risk. 5 percent of such retirees enrolling in Maryland’s state-based HCTC coverage have pensions below Enrollment Challenges that level.3 Despite these accomplishments, relatively few eli- Timing of advance payment. To receive gible individuals have taken up HCTCs. By the advance payment, beneficiaries must first enroll in end of December 2003, fewer than 8,400 workers a qualified health plan and pay premiums in full had enrolled in HCTC advance payment—3.6 for one or more months until advance payment percent of the 235,000 workers who were identi- starts. On annual tax forms, beneficiaries can claim fied as potentially eligible for HCTCs and were HCTCs to reimburse such costs. However, those mailed outreach materials (Table 1, pages 8–9). who cannot afford to front the premium payments Including dependents, total enrollment reached will remain unenrolled and uninsured. As a stopgap 13,247 by the end of December. Additional house- measure, a number of states have ameliorated this holds will claim HCTCs on their year-end federal problem by using limited federal grant funds to income tax forms for 2003. pay 65 percent of premiums until advance pay- It is still early in the program’s history. ment starts. Advance payment did not begin until August Outreach issues. The program’s main outreach 2003, and enrollment will surely grow as officials strategy is to mail a 20-page booklet to each indi- move up the learning curve and word of the new vidual whom the Pension Benefit Guaranty program spreads among potential beneficiaries. Corporation or state workforce agencies identify as However, several obstacles are already evident that, potentially eligible. Unfortunately, the material is unless addressed, may limit future take-up of detailed and complex, as is the HCTC program HCTCs.The following sections briefly touch on itself. In some recent years, 80 percent of TAA par- each obstacle in turn. ticipants have not been high school graduates, which Affordability of the beneficiary’s 35 percent suggests that these complicated materials may be premium share. For many displaced workers and ineffective with many eligible workers. At in-per- early retirees, even 35 percent of a health insurance son outreach events, many workers have required premium is more than they can afford. For workers one-on-one sessions lasting 20 minutes or longer to using advance payment of HCTCs in December explain HCTCs. Obviously, a larger-scale program 2003, their 35 percent share of the annual pre- cannot depend on such individualized instruction. mium was $1,713, on average, for single coverage. This outreach strategy also misses one of the In that same year, actively employed workers made largest groups of HCTC-eligible individuals— 4 The Commonwealth Fund namely, recently displaced workers who are still Characteristics of Qualified Plans receiving unemployment insurance, but who will This brief has already noted that potentially eligi- qualify for TAA cash payments when their unem- ble workers may not enroll if they believe that ployment benefits expire. State workforce agencies HCTC plans cost too much or offer too little.This lack complete lists of such individuals, so many section goes beyond that take-up issue and never receive written information about HCTCs. explores several other aspects of the qualified plans Moreover, current outreach materials do not for which HCTCs may be used. explain the key step required for these workers to Workers without access to qualified plans. Some be considered for HCTC eligibility—namely, workers who are otherwise eligible for HCTC do applying for TAA cash benefits. not have access to COBRA because their former Limited appeal of available coverage options. It is employer has fewer than 20 workers, no longer not yet clear what types of health coverage have offers or did not previously provide health cover- the greatest appeal to HCTC beneficiaries. Some age, or for other reasons. In the 24 states (plus may not be enrolling because they find little value Puerto Rico) without state-based coverage at the in the plans offered by their states, which may have end of 2003, most workers without access to high deductibles or other strict benefit limits as COBRA will be unable to use HCTCs to pur- noted below. On the other hand, some potentially chase health insurance. Fortunately, jurisdictions eligible individuals may be deterred from enroll- without state-qualified plans now include only one ment because they find these state-based options of four HCTC-eligible workers. too comprehensive, hence too expensive. More Distribution of enrollment and plans. In states time will be needed to reach definitive conclusions offering state-qualified coverage as of December about the insurance preferences of these displaced 2003, HCTC enrollment was evenly split between workers and early retirees. However, despite the COBRA plans and state-qualified coverage. At that extraordinary diversity among the states in the time, state-based plans included the following: coverage they offer (described below), no state has In 11 states, nongroup coverage with medical enrolled into advance payment more than 10 per- underwriting that determined premiums based cent of its potentially eligible workers. If limita- on the insurer’s assessment of each individual’s tions in the types of available state-qualified medical history; coverage were the major factor responsible for low take-up rates to date, at least one or two states In 13 states, high-risk pools, which, outside the presumably would have much higher enrollment HCTC program, primarily served individuals levels. whose medical history made it difficult to get comprehensive, affordable coverage in the non- The Potential for High Administrative Costs group market; and The administrative cost of advance payment is cur- In six states,4 community-rated plans, most of rently unstated but likely to be quite high. Such which charged the same amount to all enrollees spending could be worthwhile if it creates a sub- in a particular area, but some of which varied sidy infrastructure that could later be expanded, at premiums by age or gender. little marginal cost, to a much larger population. On the other hand, high administrative costs may (For information about coverage available in each require careful justification if they are part of state, see Table 1, pages 8–9.) ongoing program operation and will therefore Consequences of fewer federal requirements. expand proportionately as enrollment grows. Embodying a much less heavily regulated approach Health Coverage Tax Credits Under the Trade Act of 2002 5 to health coverage than previously enacted pro- 11 of 15 states, even the most generous plan grams such as Medicaid, the State Children’s excluded or severely limited at least two of the fol- Health Insurance Program, and Medicare, the lowing benefits: maternity care, mental health care, Trade Act does not impose any minimum benefit prescription drugs, or preventive care. (Of course, requirements or general premium rating rules. as noted above, some HCTC beneficiaries may Such issues are generally left to the health plans prefer coverage that has relatively limited benefits and the states. but lower premiums as a result.) For a more detailed understanding of the Both national data and our survey found coverage HCTC beneficiaries receive under this considerable variation in the cost to beneficiaries new approach, we surveyed 15 broadly representa- of state-based coverage (Figure 1). Nationally, ben- tive states, which included six nongroup plans, eficiaries’ average annual premium payments to seven high-risk pools, and five community-rated meet their 35 percent share varied, in November plans. In most states, we found significant con- and December 2003, from $974 for single coverage sumer choice. Of the 15 states we surveyed, nine in the lowest-price quartile of state-based plans to provided five or more state-qualified options from $3,904 in the highest. According to our survey, which HCTC beneficiaries could choose (Table 2, premiums varied by age in 12 of 15 states, by gen- page 10).The most common variation der in eight, by geography in seven, and by indi- was a choice among deductibles, which typically vidual health history in five. Not surprisingly, ranged between a low of $250 to $500 and a lower-risk individuals were charged more in com- high of $2,500 to $5,000 for a single, covered munity-rated plans than in risk-rated plans. For individual. example, in plans that charged women and men However, many of these plans had tight ben- the same amounts, men (who consume less health efit limitations, in addition to large deductibles. In care, on average, than do women) were required to Example of State-Based HCTC Coverage in December 2003: North Carolina A healthy, 25-year-old man could purchase a fairly comprehensive policy with a $250 deductible by making a 35 percent premium payment of $576 a year. A healthy, 25-year-old woman buying that same policy would, to include routine maternity care, have to pay $1,908 a year as her 35 percent premium share.To bring that payment down to $564 a year, she could select a policy with a $1,000 deductible and no maternity care. A healthy, 60-year-old man would need to make 35 percent annual premium payments of $1,080 in order to buy a policy with a $5,000 deductible. If that man lacked continuous coverage before enrolling, his preexisting conditions would be excluded for 12 months. A 25-year-old man with significant prior health problems that placed him in the insurer’s highest risk category would have to make 35 percent premium payments of $1,688 a year in order to buy a plan with a $5,000 deductible. If that man lacked continuous coverage before enrolling, the plan would exclude his preexisting conditions for 12 months. 6 The Commonwealth Fund gether or could have their preexist- ing conditions excluded. In nine states, such exclusions could last for 12 months after coverage began. Officials estimate that, under the “best case scenario,” it takes five months for a TAA beneficiary to receive the first HCTC advance payment following the loss of a job. In part, this is because, when a petition is filed with the Department of Labor claiming that a layoff resulted from foreign com- petition, 60 days must pass before laid-off workers may qualify for pay an average of 36 percent more than they TAA.Workers who cannot afford to pay full pre- would pay in plans with premiums that vary by mium costs based on the hope of year-end tax gender. On the other hand, most state-qualified refunds may thus experience coverage gaps lasting plans with risk-rated premiums charged women, 63 days or more, which will subject them to middle-aged or older workers, and (in some states) denials of state-based coverage in many states and consumers with prior health problems significantly preexisting condition exclusions in almost all states more than young, healthy men enrolling in identi- we surveyed. cal coverage. Regardless of premium levels, the Trade Act POLICY ALTERNATIVES requires state-based plans to meet certain con- Following are suggested strategies that could allow sumer protection requirements, including guaran- HCTCs to reach two different but complementary teed issue of health coverage and no exclusion of goals: to help guide the design of future reforms preexisting conditions. However, the Trade Act and to improve HCTCs’ coverage of the uninsured. guarantees these protections only to beneficiaries Revising HCTCs to Provide Better Information with three months of continuous health coverage, About Coverage Expansion Strategies without any gap in coverage lasting 63 days or For the country’s experience with HCTCs to longer. Under the Bush administration’s statutory yield the most useful possible information, policy- interpretation (which some key legislators disputed), makers need to consider the following steps: such continuous coverage must be in effect imme- diately before enrolling in state-based HCTC plans. Modifying HCTC legislation to grant IRS Our survey found that most state-based the flexibility to test and evaluate alternative plans limit these consumer protection measures to policies in two areas: (a) simpler and more beneficiaries who meet this requirement for prior consumer-friendly advance payment mecha- continuous coverage. In seven of the 15 states we nisms; and (b) higher credit levels, particularly surveyed, plans did not guarantee insurance to for low-income populations; and HCTC beneficiaries with recent coverage gaps. In Modifying HCTC legislation and policy to 14 of 15 states, HCTC beneficiaries with recent provide a fairer test of health insurance tax coverage gaps either were denied coverage alto- credits by simplifying eligibility, eliminating Health Coverage Tax Credits Under the Trade Act of 2002 7 barriers to coverage, improving outreach, and be, are fixable through policy redesign or are otherwise increasing take-up. inherent in the operation of tax credits, no matter how they are structured. Much more experience is Revising HCTCs to Cover the Uninsured needed before this question can be answered, but it More Effectively is already clear that the HCTC program may teach For HCTCs to do a better job of covering the significant lessons about how best to structure uninsured, policymakers need to consider addi- health insurance tax credits if they are included in tional modifications to HCTC legislation: future efforts to cover millions of uninsured Beneficiaries—particularly those with low Americans. incomes—could receive HCTCs covering more NOTES than 65 percent of premiums. 1 States could be given the option to provide A third type of coverage used by a small proportion of advance payment enrollees is, like COBRA, avail- HCTC beneficiaries with access to health plans able without state action. In any state, workers who that participate in the Federal Employees had nongroup coverage during at least their final 30 Health Benefits Program.This could expand days before separation from employment may apply state options and beneficiary choices, increase HCTCs to such coverage. Such nongroup plans were access to comprehensive coverage, and facilitate used by 4 percent of advance payment enrollees in the development of simpler, more consumer- December 2003. friendly mechanisms for advance payment. 2 In three additional states, the only form of state-qual- ified insurance is so-called “mini-COBRA coverage.” CONCLUSION Functioning much like COBRA continuation cover- The country has just begun an experiment in age, mini-COBRA coverage must, under laws in using refundable, advanceable federal income tax many states, be offered to laid-off workers by certain credits to cover the uninsured.The Bush adminis- firms with fewer than 20 employees. Federal officials believe that only a very small number of HCTC tration has already surmounted a number of diffi- beneficiaries qualify for mini-COBRA coverage. cult and important hurdles. For the program to achieve its goals, however, problems remain that 3 Sonya Schwartz and Adele Bruce, The Trade Act may need to be addressed. Health Insurance Subsidy: An Update from the States, Families USA, December 2003. Of course, problems are precisely what can 4 be expected in any new program that departs sig- Only five of these plans are operational; one was not nificantly from previous policy. Even the State approved as comprising qualified coverage. Children’s Health Insurance Program, which is now widely acclaimed as a success, had to over- come major start-up challenges. For the HCTC program as well it will take some time to assess the significance of any initial stumbles. During the past decade, tax credits have been the method most frequently proposed, by both major political parties, to help millions of uninsured Americans obtain health coverage.The basic question facing policymakers is whether HCTCs’ shortcomings, whatever they turn out to 8 Table 1. Trade Act Implementation by State, December 2003 Potentially Eligible Workersi Advance Payment Enrollees State-Based Plans Under Under Trade Proportion Other Pension Benefit Adjustment of Potential Mini- High-Risk Community- Nongroup State Guaranty Corp. Assistanceii Totaliii Numberiii Eligibles COBRAiv Pool Rated Plans Coverage Alabama 2,338 2,462 4,800 82* 1.7% X Alaska 73 62 135 * * X Arizona 1,336 468* 1,804* 36* 2.0% Arkansas 887 654* 1,541* 18* 1.2% X California 6,229 3,072 9,301 245 2.6% Colorado 1,258 913 2,171 28* 1.3% X X Connecticut 2,086 680 2,766 37* 1.3% X X Xv Delaware 264 122 386 13 3.4% Washington, D.C. 81 0 81 0 0.0% X Florida 11,059 609 11,668 283 2.4% X X Georgia 5,940 2,204* 8,144* 56 0.7% Hawaii 505 40 545 * * Idaho 327 1,238 1,565 37 2.4% Illinois 7,957 4,522 12,479 304* 2.4% X Indiana 7,898 2,080 9,978 547 5.5% X Iowa 1,183 632* 1,815* 40* 2.2% X Kansas 868 891 1,759 19 1.1% Kentucky 1,135 2,861 3,996 89* 2.2% X Louisiana 696 193 889 * * Maine 482 1,442 1,924 109* 5.7% X Maryland 4,444 372 4,816 485* 10.1% X Massachusetts 4,265 878 5,143 29* 0.6% Michigan 5,460 2,201 7,661 454 5.9% X Minnesota 2,005 1,417 3,422 206 6.0% X Mississippi 928 822 1,750 24 1.4% Missouri 5,519 1,612 7,131 192 2.7% Montana 83 259 342 16 4.7% X Nebraska 252 119 371 11* 3.0% X Nevada 725 46 771 10* 1.3% New Hampshire 893 333 1,226 15* 1.2% X New Jersey 4,156 2,419 6,575 56* 0.9% X New Mexico 276 173* 449* * * New York 7,752 2,972* 10,724* 326 3.0% X X X North Carolina 4,104 11,129 15,233 965* 6.3% X North Dakota 31 33 64 * * X The Commonwealth Fund Ohio 12,337 3,769 16,106 471 2.9% X X Table 1. Trade Act Implementation by State, December 2003 (cont.) Potentially Eligible Workersi Advance Payment Enrollees State-Based Plans Under Under Trade Proportion Other Pension Benefit Adjustment of Potential Mini- High-Risk Community- Nongroup State Guaranty Corp. Assistanceii Totaliii Numberiii Eligibles COBRAiv Pool Rated Plans Coverage Oklahoma 762 1,792 2,554 16 0.6% Oregon 475 1,329 1,804 50* 2.8% Pennsylvania 17,964 5,710 23,674 1,869 7.9% X Puerto Rico 1,009 * 1,009* 0 0.0% Rhode Island 239 251 490 * * South Carolina 1,795 2,426 4,221 46* 1.1% X South Dakota 64 18 82 * * Tennessee 2,670 5,470* 8,140* 212* 2.6% X Texas 3,753 4,943* 8,696* 62* 0.7% X Xvi Utah 526 715 1,241 * * Vermont 226 90 316 * * X X Virginia 2,686 4,907 7,593 400* 5.3% X Washington 1,068 4,969* 6,037* 123* 2.0% West Virginia 2,248 634 2,882 125* 4.3% X Health Coverage Tax Credits Under the Trade Act of 2002 Wisconsin 1,763 4,614 6,377 94* 1.5% Wyoming 69 * 69* 0 0.0% Total 143,149 91,593 234,742 8,371 3.6% 9 13 6 11 Note: In the columns listing eligible workers and workers enrolled in HCTC advance payment, some of the columns do not add up to the stated totals.That is because, to protect individuals’ privacy, the IRS does not disclose the number of people in a given state and category if the number is between 1 and 9, inclusive. Asterisks (*) indicate the presence of these nondisclosed numbers. An asterisk attached to a particular number means that the number is an understatement by an undisclosed amount. A cell consisting entirely of an asterisk means that the true number of salient individuals is between 1 and 9. i These columns list the numbers of workers, in various categories, who were known to state workforce agencies or the Pension Benefit Guaranty Corporation and for whom such agencies sent identifying information to the HCTC program.That program in turn mailed such workers outreach materials. As explained in the text, many unemployment insurance recipients who could qualify for HCTCs based on Trade Adjustment Assistance (TAA) are not included in these numbers because their identities are frequently unknown to state workforce agencies. If such recipients were added, the estimated number of potential TAA-eligible workers would probably increase substantially. ii This column also includes workers who potentially qualify under the Alternative Trade Adjustment Assistance program. iii Family members of HCTC-eligible workers are not included in these numbers. iv Many states’ laws require so-called “mini-COBRA” coverage to be offered to laid-off employees who formerly were insured by firms with fewer than 20 employees. Before HCTCs may be used to purchase such coverage, a state with a mini-COBRA law must affirmatively elect to treat such coverage as qualified under the Trade Act. v Although listed on the IRS website, this plan had not been approved as qualified coverage by the end of 2003. vi Although it was listed on the IRS website in November and December 2003, this plan was not slated to begin accepting HCTC beneficiaries until February 2004. Source: HCTC program, January 2004. Calculations by ESRI, February 2004. 9 10 Table 2. Selected Features of State-Based Plans Surveyed in November and December 2003 Extent That Premiums Are Higher Services Excluded or Very Limited For Workers with Than for a Healthy Man, Age 25i in the Most Generous State-Qualified Plansii Recent Coverage Gaps: Number of Healthy Healthy Man with Are Preexisting Coverage Woman, Man, Health Risks, Mental Prescription Preventive Range of Is Issue Conditions State Optionsiii Age 25iv Age 60 Age 25v Maternity Health Drugs Care Deductibles Guaranteed? Excluded? Nongroup Plans Indiana 3 48% 310% 150% X X $500–$2,500 No Yes North Carolina 18 231% 236% 600% X X X $250–$5,000 Yes Yes Ohiovi 7 50% 375% 150% X X $500–$5,000 No Yes Texasvii 5 29% 199% 480% X X $500–$5,000 No N/Aviii Virginiaix 12 76% 264% 500% X X X $300–$1,500 Nox Yes High-Risk Pools Alaska 6 Equal 215% Equal X X X $1,000–$10,000 Yes Yes Coloradoxi 5 53% 293% Equal X X $300–$5,000 No Yes Connecticut 4 95% 499% Equal X X $200 Yesxii Yes Illinois 8 60% 102% Equal X $500–$2,500 Noxiii Yes Maryland 2 Equal 153% Equal $0-$2,500 No Yes Montana 2 Equal 195% Equal $1,000–$2,500 Yes Yes Texas 4 41% 196% Equal X X $500–$5,000 No Yes Community- Rated Plans Connecticutxiv 1 N/A N/A N/A $0 Yes No Maine 1 Equal 46% Equal $1,000 Yes No Michigan 2 Equal Equal Equal X X $250—50% coinsurance Yes Yes New York Large number Equal Equal Equal X X $0 Yes Yes Pennsylvaniaxv 4 Equal Equal Equal X X $750–$1,500 Yes Yes i ix These percentages show differences in premiums for the most generous plan in each state.Where This row describes the nongroup coverage listed on the IRS website and offered in Virginia in premiums differed by geography, the listed premium differentials are for residents of the state capital. November and December 2003. It does not include coverage offered by an additional nongroup insurer, ii Plans are classified as offering very limited services if they either required payment of premium surcharges which was first qualified by state letter on December 23, 2003, and was not listed on the IRS website in to obtain the listed benefits, charged 40 percent or higher coinsurance, capped annual covered services at November or December 2003. x $1,000 or less, denied mental health services unless illness was severe or involved “organic brain disease,” Individuals with coverage gaps may have been offered a different plan. xi or excluded preventive care except for selected tests (like mammograms) or services for young children. For beneficiaries with recent coverage gaps of 90 days or more, Colorado’s plan did not guarantee issue iii Such options involve any differences in coverage, including deductibles. and excluded preexisting conditions. iv xii Where routine maternity care coverage was available at the beneficiary’s option (in North Carolina and Connecticut’s two preexisting high-risk-pool plans guaranteed issue. A new such plan for low-income Virginia), this pricing information includes the additional premium charges for such care. state residents did not. v xiii These differentials are for the highest risk levels applied (based on individual medical underwriting) by Individuals with coverage gaps were enrolled only if they met the state’s criteria for its high-risk pool each nongroup insurer. (i.e., the beneficiary must have had one of several listed conditions or must have been rejected by private vi Ohio offered state-qualified coverage through two nongroup insurers. Except for the column listing the insurers). Even if they met the criteria, the state had a waiting list, so enrollment would have been delayed. xiv number of coverage options in the state, which includes both insurers, the other information in this row For this community-rated plan, Connecticut’s policies on guaranteed issue and preexisting conditions refers to the more conventional and potentially generous of the two insurers.The other nongroup insurer were tentative, as of November and December 2003. At the time, the state was still negotiating with insur- limited costs by capping total reimbursement per spell of injury or illness. ers, premiums had not been set, and the federal government had not certified this coverage as qualified. vii xv Although it was listed on the IRS website in November and December 2003, this plan was not slated to This row describes coverage that was offered in the part of the state that includes the capital. Other begin accepting HCTC beneficiaries until February 2004. portions of the state had different HCTC plans available. viii Texas did not provide coverage to individuals with coverage gaps, so the issue of preexisting condition exclusions did not arise. The Commonwealth Fund Source: ESRI survey, November and December 2003. Health Coverage Tax Credits Under the Trade Act of 2002 11 The Commonwealth Fund is a private foundation supporting independent research on health and social issues.The Nathan Cummings Foundation is a family foundation seeking to build a socially and economically just society that promotes humane health care.The views presented here are those of the authors and should not be attributed to The Commonwealth Fund,The Nathan Cummings Foundation, their directors, officers, or staff, or to members of the Task Force on the Future of Health Insurance. ABOUT THE AUTHORS Stan Dorn, J.D., is a senior policy analyst at the Economic and Social Research Institute (ESRI). He has been working on health policy at the state and national level for almost 20 years, focusing on low- income consumers, Medicaid, the State Children’s Health Insurance Program (SCHIP), and the unin- sured. Previously, Dorn has served as director of the Health Consumer Alliance, a consortium of legal services groups in California helping low-income consumers obtain necessary health care. He has also directed the Health Division at the Children’s Defense Fund, where he led the health policy team in CDF’s campaign that helped pass SCHIP legislation in 1997. Dorn is a graduate of Harvard College and the Boalt Hall School of Law at the University of California, Berkeley. Todd Kutyla, M.L.A., is a research associate at ESRI, where he works mainly on health care access, cost, and quality issues. He has conducted extensive research on the cost-effectiveness of medical inno- vation, worked on projects that assess the effectiveness of programs that cover underserved populations, and helped develop and administer surveys aimed at determining attitudes toward health reform pro- posals. Before coming to ESRI, Mr. Kutyla worked at Harvard Medical School’s Department of Health Care Policy, where he managed several projects focusing on quality of care. ACKNOWLEDGMENTS The authors would like to thank The Commonwealth Fund and The Nathan Cummings Foundation for their support of this project.We are also grateful to Stuart Butler of The Heritage Foundation for his thoughtful review of an earlier draft of this paper, as well as members of the HCTC Team in multi- ple federal agencies and private firms, who generously provided information that contributed greatly to our analysis. None of the individuals who assisted us is responsible for the views expressed in this issue brief, which are exclusively those of the authors.