Health Coverage Tax Credit:

Simplified and More Timely Enrollment Process Could Increase Participation

GAO-04-1029: Published: Sep 30, 2004. Publicly Released: Oct 4, 2004.

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Congress enacted the health coverage tax credit (HCTC) in 2002 for certain displaced workers receiving income support through the Trade Adjustment Assistance (TAA) program and for certain retirees receiving pensions from the Pension Benefit Guaranty Corporation (PBGC). The HCTC equals 65 percent of the cost of qualified health coverage, which individuals can receive in advance--the Internal Revenue Service (IRS) pays the credit to the qualifying health plan and the individual pays the remaining 35 percent--or by filing for the credit in their federal tax return. GAO was asked to review the implementation of the HCTC and examined, among other issues, how many individuals received it and factors influencing participation, and the type and cost of coverage they purchased. GAO obtained data from federal and state agencies and private health plans.

For 2003, 19,410 individuals received about $37 million in benefits from IRS for the HCTC for themselves and dependents, with 12,594 (65 percent) claiming the credit on their tax returns rather than receiving it in advance. As of July 2004, about 13,200 individuals were enrolled for the advance HCTC, the majority of whom were PBGC beneficiaries. The number receiving the HCTC remains a small portion of the workers and retirees initially identified as potentially eligible. For example, some potentially eligible individuals may have other health coverage that would disqualify them from receiving the HCTC. Several additional factors may have limited participation to date. First, the advance credit only became available beginning in August 2003. Second, the enrollment process is fragmented and complex and requires individuals to meet tax, labor, and health coverage criteria before they can become eligible. Third, eligible individuals must pay the entire premium for about 3 to 6 months while completing eligibility and enrollment requirements and until IRS's first payment is made on behalf of these individuals. Fourth, the health coverage may not be affordable both in terms of an individual's ability to pay the entire premium amount while waiting to receive the advance HCTC and the ability to pay the 35 percent share once payment starts. Individuals can purchase one of several types of qualifying coverage for the HCTC: the coverage they had through their previous employer or insurance coverage options designated by states (primarily high-risk pools or arrangements with insurers). More than half of recipients chose coverage from their previous employer for the advance HCTC and another 40 percent of advance HCTC recipients enrolled in state-designated coverage options, which were available in 35 states and the District of Columbia as of July 2004. The average monthly premiums (representing both the individual and federal shares) for individuals receiving the advance HCTC were $480 for TAA recipients and $661 for PBGC beneficiaries as of April 2004. The tax credit resulted in an average monthly individual share of $168 for TAA recipients and $231 for PBGC beneficiaries. The premiums paid by advance credit recipients varied widely depending on the coverage purchased, including the type of health plan and the number of individuals covered. The cost of HCTC coverage also was affected by the premium-setting practices of qualified health plans.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matters for Congressional Consideration

    Matter: To simplify the advance HCTC eligibility process and enable some trade-displaced workers to qualify for the HCTC sooner after losing employment, Congress may wish to amend existing law to permit TAA recipients to enroll in the HCTC program (1) without waiting 60 days or more to establish eligibility for the trade readjustment allowance and (2) without first meeting trade readjustment allowance requirements pertaining to training.

    Status: Closed - Not Implemented

    Comments: The Trade Adjustment Assistance Extension Act of 2011 specified that the HCTC program will expire at the end of 2013. Therefore, any additional congressional action related to the HCTC will not be needed.

    Matter: To more promptly reimburse eligible individuals for some of the health coverage premiums they paid during the 3 to 6 months that the advance HCTC eligibility and enrollment process typically takes, Congress may wish to allow the HCTC program to retroactively pay the 65 percent HCTC for the 1 to 3 months between enrollment for and receipt of the advance HCTC, rather than requiring individuals to wait for the end-of-year credit to receive that portion of the benefit.

    Status: Closed - Not Implemented

    Comments: The Trade Adjustment Assistance Extension Act of 2011 specified that the HCTC program will expire at the end of 2013. Therefore, any additional congressional action related to the HCTC will not be needed.

    Matter: To help eligible individuals maintain their rights to guaranteed coverage and other consumer protections during the time it takes to become eligible and enroll for the HCTC, Congress may wish to specify that for individuals who had health coverage for the 3 months immediately prior to becoming eligible for TAA benefits or PBGC pension payments, the 63-day break in coverage used to determine continuous coverage may begin with the HCTC program office's notification of potential eligibility.

    Status: Closed - Not Implemented

    Comments: The Trade Adjustment Assistance Extension Act of 2011 specified that the HCTC program will expire at the end of 2013. Therefore, any additional congressional action related to the HCTC will not be needed.

    Recommendations for Executive Action

    Recommendation: To help individuals understand and comply with the multiple labor, health coverage, and tax eligibility requirements for receipt of the HCTC, the Secretary of Labor, the Commissioner of Internal Revenue, the Administrator of CMS, and the Executive Director of the PBGC should, in coordination with state officials, provide for a centralized resource for individuals to receive information on and assistance with HCTC eligibility criteria, including individualized assistance in completing each step of the eligibility and enrollment process and information about qualified health coverage options available in their local area. This centralized resource should be available at the time individuals must make decisions about purchasing qualifying health coverage and meeting other qualifying criteria, which may occur before the HCTC call center and other existing resources have been notified about an individual's potential eligibility.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: To address GAO's recommendation regarding information to assist HCTC eligibles comply with HCTC's eligibility requirements IRS and Labor have developed the following tools: 1) A HCTC program kit was launched in early 2007 to assist eligible individuals through the steps required to determine eligibility for HCTC and access program benefits. The program kit is an interactive tool which asks a variety of eligibility questions and addresses other program requirements. Based on the responses provided to these questions the individual goes through the program eligibility process to determine whether they are qualified for HCTC, and what actions are required to establish eligibility and receive program benefits. The design of the program kit--incorporating a skip pattern--assists the individual in addressing issues that are relevant to their specific individual circumstance and skips those that are not. 2) HCTC Guide for State Rapid Response Teams-this guide offers tips to help state rapid response teams provide timely information about HCTC to employers, employees and health plan administrators. 3) TAA/ATAA registration to do list--helps TAA/ATAA eligibles successfully register for HCTC. 4) Employer's information guide--this guide provided to employers contains answers on questions such as what is the HCTC, who is eligible for HCTC, how employers can help their employees access HCTC benefits, and what are qualified health plans. 5) PBGC Registration to do list--this check list is designed to ensure successful registration for HCTC. The check list contains information on how to register for PBGC benefits, how to enroll in a qualified health plan, what to do when you receive a HCTC program kit and what to expect once registration is complete. 6) HCTC flow chart--shows each step in the TAA and PBGC certification process and how long the overall process typically takes. The tools developed and actions taken by the IRS and Labor address this recommendation.

    Recommendation: To help individuals understand and comply with the multiple labor, health coverage, and tax eligibility requirements for receipt of the HCTC, the Secretary of Labor, the Commissioner of Internal Revenue, the Administrator of CMS, and the Executive Director of the PBGC should, in coordination with state officials, provide for a centralized resource for individuals to receive information on and assistance with HCTC eligibility criteria, including individualized assistance in completing each step of the eligibility and enrollment process and information about qualified health coverage options available in their local area. This centralized resource should be available at the time individuals must make decisions about purchasing qualifying health coverage and meeting other qualifying criteria, which may occur before the HCTC call center and other existing resources have been notified about an individual's potential eligibility.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: To address GAO's recommendation regarding information to assist HCTC eligibles comply with HCTC's eligibility requirements, IRS and other agencies have developed the following tools: 1) A HCTC program kit was launched in early 2007 to assist eligible individuals through the steps required to determine eligibility for HCTC and access program benefits. The program kit is an interactive tool which asks a variety of eligibility questions and addresses other program requirements. Based on the responses provided to these questions the individual goes through the program eligibility process to determine whether they are qualified for HCTC, and what actions are required to establish eligibility and receive program benefits. The design of the program kit--incorporating a skip pattern--assists the individual in addressing issues that are relevant to their specific individual circumstance and skips those that are not. 2) HCTC Guide for State Rapid Response Teams-this guide offers tips to help state rapid response teams provide timely information about HCTC to employers, employees and health plan administrators. 3) TAA/ATAA registration to do list--helps TAA/ATAA eligibles successfully register for HCTC. 4) Employer's information guide--this guide provided to employers contains answers on questions such as what is the HCTC, who is eligible for HCTC, how employers can help their employees access HCTC benefits, and what are qualified health plans. 5) PBGC Registration to do list--this check list is designed to ensure successful registration for HCTC. The check list contains information on how to register for PBGC benefits, how to enroll in a qualified health plan, what to do when you receive a HCTC program kit and what to expect once registration is complete. 6) HCTC flow chart--shows each step in the TAA and PBGC certification process and how long the overall process typically takes. The tools developed and actions taken by the IRS and Labor address this recommendation.

    Recommendation: To help individuals understand and comply with the multiple labor, health coverage, and tax eligibility requirements for receipt of the HCTC, the Secretary of Labor, the Commissioner of Internal Revenue, the Administrator of CMS, and the Executive Director of the PBGC should, in coordination with state officials, provide for a centralized resource for individuals to receive information on and assistance with HCTC eligibility criteria, including individualized assistance in completing each step of the eligibility and enrollment process and information about qualified health coverage options available in their local area. This centralized resource should be available at the time individuals must make decisions about purchasing qualifying health coverage and meeting other qualifying criteria, which may occur before the HCTC call center and other existing resources have been notified about an individual's potential eligibility.

    Agency Affected: Department of Labor

    Status: Closed - Implemented

    Comments: To address GAO's recommendation regarding information to assist HCTC eligibles comply with HCTC's eligibility requirements IRS and Labor have developed the following tools: 1) A HCTC program kit was launched in early 2007 to assist eligible individuals through the steps required to determine eligibility for HCTC and access program benefits. The program kit is an interactive tool which asks a variety of eligibility questions and addresses other program requirements. Based on the responses provided to these questions the individual goes through the program eligibility process to determine whether they are qualified for HCTC, and what actions are required to establish eligibility and receive program benefits. The design of the program kit--incorporating a skip pattern--assists the individual in addressing issues that are relevant to their specific individual circumstance and skips those that are not. 2) HCTC Guide for State Rapid Response Teams-this guide offers tips to help state rapid response teams provide timely information about HCTC to employers, employees and health plan administrators. 3) TAA/ATAA registration to do list--helps TAA/ATAA eligibles successfully register for HCTC. 4) Employer's information guide--this guide provided to employers contains answers on questions such as what is the HCTC, who is eligible for HCTC, how employers can help their employees access HCTC benefits, and what are qualified health plans. 5) PBGC Registration to do list--this check list is designed to ensure successful registration for HCTC. The check list contains information on how to register for PBGC benefits, how to enroll in a qualified health plan, what to do when you receive a HCTC program kit and what to expect once registration is complete. 6) HCTC flow chart--shows each step in the TAA and PBGC certification process and how long the overall process typically takes. The tools developed and actions taken by the IRS and Labor address this recommendation.

    Recommendation: To help individuals understand and comply with the multiple labor, health coverage, and tax eligibility requirements for receipt of the HCTC, the Secretary of Labor, the Commissioner of Internal Revenue, the Administrator of CMS, and the Executive Director of the PBGC should, in coordination with state officials, provide for a centralized resource for individuals to receive information on and assistance with HCTC eligibility criteria, including individualized assistance in completing each step of the eligibility and enrollment process and information about qualified health coverage options available in their local area. This centralized resource should be available at the time individuals must make decisions about purchasing qualifying health coverage and meeting other qualifying criteria, which may occur before the HCTC call center and other existing resources have been notified about an individual's potential eligibility.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: To address GAO's recommendation regarding information to assist HCTC eligibles comply with HCTC's eligibility requirements, IRS and other agencies have developed the following tools: 1) A HCTC program kit was launched in early 2007 to assist eligible individuals through the steps required to determine eligibility for HCTC and access program benefits. The program kit is an interactive tool which asks a variety of eligibility questions and addresses other program requirements. Based on the responses provided to these questions the individual goes through the program eligibility process to determine whether they are qualified for HCTC, and what actions are required to establish eligibility and receive program benefits. The design of the program kit--incorporating a skip pattern--assists the individual in addressing issues that are relevant to their specific individual circumstance and skips those that are not. 2) HCTC Guide for State Rapid Response Teams-this guide offers tips to help state rapid response teams provide timely information about HCTC to employers, employees and health plan administrators. 3) TAA/ATAA registration to do list--helps TAA/ATAA eligibles successfully register for HCTC. 4) Employer's information guide--this guide provided to employers contains answers on questions such as what is the HCTC, who is eligible for HCTC, how employers can help their employees access HCTC benefits, and what are qualified health plans. 5) PBGC Registration to do list--this check list is designed to ensure successful registration for HCTC. The check list contains information on how to register for PBGC benefits, how to enroll in a qualified health plan, what to do when you receive a HCTC program kit and what to expect once registration is complete. 6) HCTC flow chart--shows each step in the TAA and PBGC certification process and how long the overall process typically takes. The tools developed and actions taken by the IRS and Labor address this recommendation.

    Recommendation: To ensure that HCTC-eligible individuals and recipients receive timely and appropriate information, responses to inquiries, enrollment processing, and advance HCTC payments, the Commissioner of Internal Revenue should evaluate the effect that any reduced service levels will have on eligible individuals and health plans' ability to receive the HCTC on a timely basis and their satisfaction with the information and services provided.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: The HCTC program monitors service levels at the customer contact center to assess the quality of service delivered to its customers. The HCTC program tracks the following statistics: (1) assistor response level (ARL); (2) average speed to answer (ASA); and (3) average handle time (AHT). These statistics are monitored daily, weekly, and monthly. The target ARL of an 80 percent target level (80 percent of calls answered in 30 seconds) was met each month during the specified period. AHT improved from May 2004 to May 2005 and ASA increased during the 2 month period (December 04 and January 05) when health plan changes are processed.

    Recommendation: To improve the quality of eligibility information provided by the states, the Secretary of Labor and the Commissioner of Internal Revenue should coordinate to improve the accuracy of data received from state workforce agencies.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: To address GAO's recommendation regarding improving the quality and accuracy of data received from state workforce agencies, IRS and Labor have taken a number of steps. These steps include: (1) conducting monthly reviews of the eligibility list and providing feedback to the states through Labor; (2) establishing a data quality working group to diagnose existing data quality issues and provide guidance to help states; and (3) encouraging registration for HCTC earlier in the month, resulting in fewer late records. As of September 2006, a Labor official reported that they continue to work with IRS to monitor the eligibility lists received from the state workforce agencies. A Labor official reported in September 2007 that "there has been a dramatic decrease in congressional correspondence surrounding HCTC eligibility issues, which would support a conclusion that accuracy of state lists has been successfully addressed." In addition, the official stated that changes to the HCTC program which would simplify the process are under discussion in the Trade Reauthorization process currently before Congress. The actions taken by Labor and IRS address this recommendation.

    Recommendation: To improve the quality of eligibility information provided by the states, the Secretary of Labor and the Commissioner of Internal Revenue should coordinate to improve the accuracy of data received from state workforce agencies.

    Agency Affected: Congress

    Status: Closed - Implemented

    Comments: To address GAO's recommendation regarding improving the quality and accuracy of data received from state workforce agencies, IRS and Labor have taken a number of steps. These steps include: (1) conducting monthly reviews of the eligibility list and providing feedback to the states through Labor; (2) establishing a data quality working group to diagnose existing data quality issues and provide guidance to help states; and (3) encouraging registration for HCTC earlier in the month, resulting in fewer late records. As of September 2006, a Labor official reported that they continue to work with IRS to monitor the eligibility lists received from the state workforce agencies. A Labor official reported in September 2007 that "there has been a dramatic decrease in congressional correspondence surrounding HCTC eligibility issues, which would support a conclusion that accuracy of state lists has been successfully addressed." In addition, the official stated that changes to the HCTC program which would simplify the process are under discussion in the Trade Reauthorization process currently before Congress. The actions taken by Labor and IRS address this recommendation.

    Recommendation: To simplify payment processing for advance HCTC enrollees and avoid disruptions resulting from premium changes, the Commissioner of Internal Revenue should encourage participating health plans to provide notification of changes in premiums directly to the HCTC program office rather than relying primarily on individuals for providing this information.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: The HCTC executive change control board has approved a proposal to standardize the HCTC's ability to process bulk premium changes from health plan administrators using standardized forms and documentation. Approximately 30 percent of premium changes made this year were bulk premium changes made upon the health plan administrator's request.

    Recommendation: Given that PBGC beneficiaries who enroll in Medicare lose eligibility for the HCTC even though their spouses or other dependents may not yet be eligible for Medicare or have alternative sources for insurance coverage, the Commissioner of Internal Revenue and the Executive Director of the PBGC should coordinate to report to Congress on how many PBGC beneficiaries previously receiving the HCTC have attained the age of 65 and potentially lost eligibility due to enrolling in Medicare, and how many of these former HCTC recipients have spouses or other dependents who are no longer able to receive coverage subsidized by the HCTC.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: HCTC and PBGC analyzed their data to estimate the number of HCTC enrollees who have lost eligibility for HCTC because they became eligible for Medicare. Based on this analysis, it was estimated that 1,300 PBGC advance payment enrollees turn 65 in a year, affecting approximately 600 qualified family members who lost coverage. As HCTC program enrollment increases, it is expected that the number of participants turning 65 and the number of affected qualified family members will increase proportionately.

    Recommendation: Given that PBGC beneficiaries who enroll in Medicare lose eligibility for the HCTC even though their spouses or other dependents may not yet be eligible for Medicare or have alternative sources for insurance coverage, the Commissioner of Internal Revenue and the Executive Director of the PBGC should coordinate to report to Congress on how many PBGC beneficiaries previously receiving the HCTC have attained the age of 65 and potentially lost eligibility due to enrolling in Medicare, and how many of these former HCTC recipients have spouses or other dependents who are no longer able to receive coverage subsidized by the HCTC.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: HCTC and PBGC analyzed their data to estimate the number of HCTC enrollees who have lost eligibility for HCTC because they became eligible for Medicare. Based on this analysis, it was estimated that 1,300 PBGC advance payment enrollees turn 65 in a year, affecting approximately 600 qualified family members who lost coverage. As HCTC program enrollment increases, it is expected that the number of participants turning 65 and the number of affected qualified family members will increase proportionately.

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