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Enrollment Process Could Increase Participation' which was released on 
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Report to the Committee on Finance, U.S. Senate:

United States Government Accountability Office:

GAO:

September 2004:

Health Coverage Tax Credit:

Simplified and More Timely Enrollment Process Could Increase 
Participation:

GAO-04-1029:

GAO Highlights:

Highlights of GAO-04-1029, a report to the Committee on Finance, U.S. 
Senate.

Why GAO Did This Study:

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.

What GAO Found:

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: 

* The advance credit only became available beginning in August 2003. 
* The enrollment process is fragmented and complex and requires 
individuals to meet tax, labor, and health coverage criteria before 
they can become eligible. 
* 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.
* 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. 

What GAO Recommends:

GAO suggests that Congress consider amending certain statutory 
enrollment requirements to expedite individuals’ receipt of the HCTC. 
GAO recommends that IRS, in coordination with other federal agencies, 
take steps to improve the quality and clarity of enrollment information 
and the timeliness of enrollment and payment processing. The agencies 
either agreed with GAO’s recommendations or deferred to IRS.

www.gao.gov/cgi-bin/getrpt?GAO-04-1029.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Kathryn G. Allen at (202) 
512-7118.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

More Than 19,000 Individuals Received HCTC for 2003, but Participation 
May Have Been Limited by Several Factors:

Majority of Advance HCTC Enrollees Purchased COBRA; Benefits and Costs 
Varied with Type of Qualified Coverage:

IRS Implemented the HCTC on Time and Is Addressing Some Early 
Implementation Issues:

45 States Received National Emergency Infrastructure Grants; Fewer 
States Received National Emergency Bridge or High-Risk Pool Grants:

Conclusions:

Matters for Congressional Consideration:

Recommendations for Executive Action:

Agency and State Comments and Our Evaluation:

Appendix I: Advance Health Coverage Tax Credit Enrollees, by State, 
July 2004:

Appendix II: State-Qualified Coverage Options:

Appendix III: Variation in Benefits Across State-Qualified Health Plans 
in Seven States:

Appendix IV: Premiums Paid by Advance HCTC Enrollees:

Appendix V: Amount Awarded for National Emergency Grants and High-Risk 
Pool Grants, by State, August 2004:

Appendix VI: Comments from the Department of Labor:

Appendix VII: Comments from the Internal Revenue Service:

Appendix VIII: Comments from the Centers for Medicare & Medicaid 
Services:

Appendix IX: Comments from the Pension Benefit Guaranty Corporation:

Appendix X: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Tables:

Table 1: Overview of Federal, State, and Private Entities' Involvement 
with the HCTC:

Table 2: Monthly HCTC Potentially Eligible Population and Enrollment 
for the Advance HCTC, September 2003 through July 2004:

Table 3: Demographic Characteristics of the Advance HCTC Potentially 
Eligible Population, October 2003:

Table 4: Benefits Most Commonly Included in Employer-Sponsored Group 
Market PPO Coverage, 2003:

Table 5: State-Qualified Coverage Types for HCTC Recipients in Seven 
States:

Table 6: Deductible Amounts in Selected Plans in Six States with State-
Qualified Arrangements with One or More Insurers:

Table 7: Deductible Amounts in Selected Plans in Three States with 
State-Qualified High-Risk Pools:

Table 8: Summary of IRS's Incurred and Expected HCTC Administration 
Costs, February 2003 through June 2005:

Table 9: Reasons States Did Not Apply for National Emergency Grants:

Table 10: Types of State-Qualified HCTC Plans Available, by State, July 
2004:

Table 11: Annual Deductibles across Selected State-Qualified Health 
Plans in Seven States:

Table 12: Maternity Benefits across State-Qualified Health Plans in 
Seven States:

Table 13: Mental Health Benefits across State-Qualified Health Plans in 
Seven States:

Table 14: Prescription Drug Benefits across State-Qualified Health 
Plans in Seven States:

Table 15: Average Total Monthly Premiums for Advance HCTC Enrollees, by 
State, February 2004:

Figures:

Figure 1: Steps for TAA Recipients and PBGC Beneficiaries to Qualify 
for, Enroll in, and Receive the Advance HCTC:

Figure 2: Number of Individuals Receiving the End-of-Year HCTC, Advance 
HCTC, and Both Forms of the HCTC for Themselves and Dependents, 2003:

Figure 3: Estimated Typical Timeline for Trade-Affected Workers to 
Receive Advance HCTC:

Figure 4: Percentage of Advance HCTC Enrollees with COBRA, Individual 
Market, and State-Qualified Plans, through April 2004:

Figure 5: Percentage of Advance HCTC TAA Recipients and PBGC 
Beneficiaries with COBRA, Individual Market, and State-Qualified Plans, 
by Eligibility Type, through April 2004:

Figure 6: National Range of Monthly Advance HCTC Premium Costs for One-
Person Coverage, by Plan Type, May 2004:

Figure 7: State Workforce Agencies' Perspectives on Timeliness and 
Adequacy of HCTC Program Office's and Labor's Assistance with 
Implementing the Advance HCTC, March 2004:

Abbreviations:

ATAA: alternative trade adjustment assistance: 
CCR: Central Contractor Registration: 
CMS: Centers for Medicare & Medicaid Services: 
COBRA: Consolidated Omnibus Budget Reconciliation Act of 1985: 
EPO: exclusive provider organization: 
FFS: fee for service: 
HCTC: health coverage tax credit: 
HHS: Department of Health and Human Services: 
HIPAA: Health Insurance Portability and Accountability Act of 1996: 
HMO: health maintenance organization: 
IRS: Internal Revenue Service: 
PBGC: Pension Benefit Guaranty Corporation: 
POS: point of service: 
PPO: preferred provider organization: 
TAA: Trade Adjustment Assistance:

United States Government Accountability Office:

Washington, DC 20548:

September 30, 2004:

The Honorable Charles E. Grassley: 
Chairman: 
The Honorable Max Baucus: 
Ranking Minority Member: 
Committee on Finance:
United States Senate:

The Trade Adjustment Assistance (TAA) Reform Act of 2002 created a 
health coverage tax credit (HCTC) for certain workers who are eligible 
to receive income support benefits under the TAA program because their 
jobs were lost due to foreign competition and for certain retirees 
whose pensions from a former employer were terminated and are now paid 
by the Pension Benefit Guaranty Corporation (PBGC).[Footnote 
1],[Footnote 2] The HCTC equals 65 percent of the premium for qualified 
health coverage. Several types of qualified health coverage were 
specified in the TAA Reform Act, including federally guaranteed 
continuation of coverage from a former employer, known as COBRA 
continuation coverage,[Footnote 3] and several state-designated 
options such as state-sponsored high-risk pools[Footnote 4] and state 
arrangements with private insurers.

An important attribute of the HCTC is that it provides eligible 
individuals with a tax credit that they can receive in advance of 
filing their tax returns to help them reduce the cost of health 
coverage. That is, instead of paying for health coverage up front and 
having to wait until the end of the year to claim the credit on their 
income taxes, individuals can choose to receive the HCTC at the time 
their premium is due each month, thereby lowering the amount they have 
to pay out of pocket for health coverage. This advance HCTC option is 
intended to help make health coverage more affordable for eligible 
individuals, many of whom have recently lost their primary source of 
income and health coverage along with their jobs. Individuals also have 
the alternative of paying the entire premium to the qualifying health 
plan and claiming the credit when they file their income taxes for that 
year.[Footnote 5] The end-of-year HCTC was first available to eligible 
individuals for December 2002, and the advance HCTC was first made 
available in August 2003.[Footnote 6]

The combination of tax, labor, and health coverage requirements for the 
HCTC necessitates coordination among multiple federal agencies 
(including the Department of the Treasury, the Department of Labor, the 
Department of Health and Human Services (HHS), and PBGC); state 
agencies (including state workforce agencies, which are responsible for 
administering training and financial assistance benefits for trade-
displaced workers, and state departments of insurance); and private 
health plans. At the federal level, an HCTC program office within the 
Treasury's Internal Revenue Service (IRS) administers the HCTC with 
assistance from private contractors. In addition, the TAA Reform Act 
allowed states to apply to Labor for national emergency grants to help 
implement the HCTC and created new grants from HHS for states to 
establish and operate state high-risk pools.

You asked us to examine the early implementation of the HCTC, 
particularly during the first year of the advance HCTC option. To do 
so, we answered the following questions.

1. Of those eligible to receive the HCTC, how many received it and what 
factors have influenced participation in the HCTC?

2. Which types of qualified coverage have HCTC recipients purchased, 
how did benefits differ among these types of coverage, and how much did 
this coverage cost?

3. What was IRS's experience in implementing the HCTC and how were 
program responsibilities shared between federal and private sector 
entities?

4. How many states received national emergency grants and high-risk 
pool grants and why did some not apply for funds?

To identify the number of people potentially eligible for and the 
number who received the HCTC, we obtained data from IRS's HCTC program 
office for both the advance and end-of-year HCTC recipients in calendar 
year 2003, the number of individuals receiving the end-of-year HCTC for 
December 2002, and the number of individuals enrolled for the advance 
HCTC monthly since August 2003.[Footnote 7] We also obtained 
demographic data and information on why some potentially eligible 
individuals were not receiving the advance HCTC from two HCTC program 
office surveys, conducted in October 2003 and February 2004;[Footnote 
8] surveyed officials in each state workforce agency;[Footnote 
9],[Footnote 10] and interviewed officials from state workforce 
agencies and qualified health plans in eight states. We selected 
California, Illinois, Maryland, New York, North Carolina, Ohio, 
Pennsylvania, and Texas because they had relatively large potentially 
eligible populations; had designated different types of state-qualified 
plans, such as high-risk pools or arrangements with private insurers; 
and were in different geographic regions of the country. From IRS, we 
obtained data on which types of plans states had designated as state-
qualified coverage options, which types of coverage advance HCTC 
enrollees purchased, and the cost of coverage purchased by advance HCTC 
enrollees. IRS provided these data on a monthly basis from August 2003 
through June 2004 and on a cumulative basis from August 2003 through 
April 2004.[Footnote 11] We obtained information about the benefits 
available to HCTC recipients from officials at qualified health plans 
in the eight states we reviewed, COBRA administrators, and the Henry J. 
Kaiser Family Foundation and the Health Research and Educational 
Trust's national survey of employers' health benefits. Data on 
demographic characteristics, types of coverage purchased, premiums paid 
for coverage, and information on why some potentially eligible 
individuals did not claim the HCTC were not available for end-of-year 
HCTC recipients in 2002 or 2003. We obtained information about IRS's 
implementation of the HCTC from officials at IRS, Labor, HHS, and PBGC; 
a survey we conducted of officials in each state workforce agency; 
state workforce, department of insurance, and 10 health plan officials 
in the eight states we reviewed; and COBRA administrators, 
representatives from the Blue Cross and Blue Shield Association, and 
representatives from the United Steelworkers of America, which had 
members eligible to receive the HCTC. We also interviewed officials 
from Accenture, the primary contractor responsible for implementing the 
advance HCTC, and reviewed contract documents. Labor provided us with 
information on the national emergency grant awards, and HHS's Centers 
for Medicare & Medicaid Services (CMS) provided us with information on 
high-risk pool grant awards. We obtained additional information about 
these grants and why states did not apply for them from our survey of 
state workforce agencies, officials in the states we reviewed, and 
officials from the HCTC program office and CMS. We obtained information 
from IRS officials regarding the data checks and edits they perform on 
their data and any notable limitations, and determined that the data 
used in this report were sufficiently reliable for our purposes. We 
conducted our work from December 2003 through September 2004 in 
accordance with generally accepted government auditing standards.

Results in Brief:

For 2003, 19,410 individuals received about $37 million in benefits for 
themselves and dependents for the advance and end-of-year HCTC. 
Specifically, 12,594 individuals received the end-of-year HCTC only, 
3,120 individuals received the advance HCTC only, and 3,696 received 
both forms of the HCTC. As of July 31, 2004, about 13,200 individuals 
were enrolled for the advance HCTC, the majority of whom (60 percent) 
were PBGC beneficiaries. The number of individuals receiving the HCTC 
remains a small portion of those initially identified by states and 
PBGC as potentially eligible for the HCTC, many of whom may not 
ultimately meet all of the HCTC eligibility criteria. According to 
federal, state, health plan, and union officials we interviewed, 
participation to date in the advance and end-of year HCTC may be 
limited by several factors. These factors include the newness of the 
program; the fragmentation and complexity of the eligibility 
determination and enrollment process, which requires individuals to 
navigate steps that involve multiple federal and state agencies and to 
meet specific tax, labor, and health coverage requirements before 
becoming eligible for the HCTC; the gap of 3 to 6 months that it takes 
for eligibility determination, enrollment for the HCTC, and IRS's first 
payment on behalf of the eligible individual to be made, during which 
time the individual must pay the entire premium; and the ongoing cost 
to the individual of the 35 percent share of the premium once the 
advance HCTC payments have begun. For a single person, the ongoing cost 
for the 35 percent share of the premium represented about 13 percent, 
and for two people about 25 percent, of the average monthly income 
support benefits received by trade-displaced workers.

From the inception of the advance HCTC in August 2003 through April 
2004, 56 percent of advance HCTC enrollees purchased COBRA coverage 
through their former employer, 40 percent purchased state-qualified 
coverage, and 4 percent continued to purchase the individual market 
coverage they were enrolled in 30 days prior to the separation from 
employment that resulted in their becoming eligible for TAA benefits or 
PBGC payments. Comparable data on the coverage purchased by end-of-year 
recipients were not available. As of July 2004, 36 states had made 
state-qualified coverage available to HCTC recipients, primarily 
through high-risk pools or arrangements with insurers. Although the 
benefits available to HCTC recipients varied by plan, employer-based 
COBRA plans generally had lower annual deductibles than state-sponsored 
high-risk pools and arrangements with insurers, and provided more 
comprehensive coverage for maternity care, mental health care, and 
prescription drugs than state-qualified coverage offered through 
arrangements with insurers in the 8 states we reviewed. The average 
monthly premiums (representing both the individual and federal shares) 
were $480 for TAA recipients and $661 for PBGC beneficiaries receiving 
the advance HCTC; with the tax credit, the average share of the premium 
that advance HCTC enrollees paid was $168 for TAA recipients and $231 
for PBGC beneficiaries. The amount that advance HCTC enrollees paid for 
coverage also varied depending on the number of people covered by the 
plan and the type of coverage purchased. In the 8 states we reviewed, 
the cost of HCTC coverage also was affected by the way in which 
qualified health plans set premiums. For example, among plans we 
reviewed, COBRA coverage charged group rates to HCTC recipients 
regardless of their health status; high-risk pools charged premiums for 
all HCTC recipients that were typically 150 or 200 percent of standard 
premium rates for healthy individuals; and arrangements with insurers 
charged premiums that varied on the basis of an individual's health and 
other factors, with some unhealthy, high-risk HCTC recipients paying 
500 percent or more of the rates that healthy, low-risk individuals 
would pay. These premium-setting practices were similar to those used 
by health plans to determine premiums for non-HCTC enrollees.

IRS's HCTC program office implemented the HCTC within the time frames 
required by statute, enabling individuals to claim the end-of-year HCTC 
on their 2002 income tax returns and making the advance credit 
available on August 1, 2003. To do so, the HCTC program office 
coordinated closely with other federal agencies, state agencies, and 
private health plans and used private contractors extensively. These 
stakeholders generally reported that the collaborative effort to 
implement the HCTC went well and that the HCTC program office was 
generally responsive to implementation issues that arose. For example, 
after discovering that some ineligible individuals claimed and received 
the end-of-year HCTC in tax year 2002, IRS began recovering these funds 
and revised its forms and processes to reduce these problems for tax 
year 2003. The HCTC program office also adapted its processes to 
address implementation issues for the advance HCTC. For example, 
certain health plans were unwilling to accept advance credit payments 
because they did not want to receive electronic payments or because 
they found the health plan registration process burdensome. The HCTC 
program office responded by simplifying its registration process and 
agreed to issue paper checks to health plans that would not accept 
electronic payments. However, some implementation issues have not been 
resolved, such as incomplete information from states that the HCTC 
program office uses to verify the eligibility of advance HCTC 
enrollees, and delays in health plans' receiving complete payments when 
the plans' premiums changed during the year. The HCTC program office 
reported that start-up costs for design, development, and 
implementation of the HCTC were $69 million from the time work began in 
February 2003 through April 2004. For the year starting July 2004, 
operating costs for the HCTC are expected to be about $40 million. 
These costs include anticipated costs for enhancements, such as updated 
software, and reflect a reduction in contractor staff, although 
contractors will continue to conduct the majority of the administrative 
and operating tasks.

Most states obtained national emergency grants from Labor, while fewer 
than half of the states received high-risk pool grants from CMS. As of 
August 2004, 45 states had received $45 million of the available $90 
million in national emergency grants available for infrastructure 
grants (to help set up mechanisms for administering the HCTC) and for 
bridge grants (to pay a portion of the HCTC premiums). Specifically, 45 
states received about $7 million in infrastructure grants to help 
establish mechanisms required for the HCTC, and 11 states also received 
about $38 million in bridge grants to help pay a portion of enrollees' 
premiums prior to availability of the advance HCTC. Most states that 
did not apply for bridge grants said they did not have systems in place 
to implement the grant. While bridge grants were originally used to 
help individuals with premiums before implementation of the advance 
HCTC, Labor has expanded the use of bridge grants to allow states to 
cover the 65 percent share of premiums during the typically 1-to 3-
month gap between applicants' enrollment and IRS's payment of the first 
month's advance HCTC. Twenty-one states received high-risk pool grants 
from CMS as of August 2004. Specifically, as of August 2004, about $30 
million of the $80 million available for operating grants (to offset 
financial losses from operating a high-risk pool) had been awarded to 
16 states, and about $4 million of $20 million available for seed 
grants (to establish a new high-risk pool) had been awarded to 6 
states. CMS officials reported that one reason seed grants were not 
sought more often is that states were reluctant to take on the 
continuing financial obligation of a high-risk pool.

We are suggesting that Congress consider amending certain statutory 
HCTC enrollment requirements and time frames in order to simplify and 
shorten the enrollment process for the advance HCTC. We are also 
suggesting that Congress consider providing for retroactive payment of 
the HCTC from the time that an individual is determined eligible until 
the first advance payment is received. In addition, we are recommending 
that the Secretary of Labor, Commissioner of Internal Revenue, 
Administrator of CMS, and Executive Director of PBGC take various steps 
to improve the quality and clarity of enrollment information and the 
timeliness of enrollment and payment processing. We provided a draft of 
this report to IRS, Labor, PBGC, CMS, and officials in the eight states 
we reviewed. The federal agencies either concurred with our 
recommendations or deferred to IRS as the lead agency in implementing 
the recommendations. The state agencies that commented on our draft 
generally concurred with our findings.

Background:

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.

Eligibility for the HCTC:

Three groups of individuals may be eligible to receive the HCTC for 
themselves and their qualified family members:[Footnote 12]

5. 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.[Footnote 13] 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.[Footnote 14] 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.[Footnote 15]

6. 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.[Footnote 16]

7. 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.[Footnote 17] 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.[Footnote 18] 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.

HCTC Qualified Health Coverage:

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.

Automatically Qualified Coverage Options:

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.[Footnote 19] 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.

State-Qualified Coverage Options:

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.[Footnote 20]

* 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.[Footnote 21] 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;[Footnote 22] (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.[Footnote 23] 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.

State Grants:

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.[Footnote 24] 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.[Footnote 25] 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.[Footnote 26]

Federal, State, and Private Entity Roles in Implementing the HCTC:

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.[Footnote 27] 
Separate funding was provided for HCTC payments. In addition, PBGC--a 
federal corporation created by the Employee Retirement Income Security 
Act of 1974--is responsible for submitting, on a monthly basis, the 
names of PBGC beneficiaries potentially eligible for the HCTC to the 
HCTC program office. State responsibilities include identifying TAA 
individuals who are potentially eligible for the HCTC and, if the state 
so chooses, making state-qualified health coverage options available.

Table 1: Overview of Federal, State, and Private Entities' Involvement 
with the HCTC:

Entity: Federal agencies: Treasury; 
Responsibility or action: 
* Has primary responsibility for implementing the HCTC, with 
assistance from private contractors; 
* Created HCTC program office within IRS to implement and administer 
the credit; 
* Pays end-of-year HCTC to individuals and advance HCTC to health 
plans; 
* Reviews states' selection of qualified health plans.

Entity: Federal agencies: Labor; 
Responsibility or action: 
* Certifies trade-affected groups as meeting TAA criteria; 
* Administers national emergency grants.

Entity: Federal agencies: PBGC; 
Responsibility or action: 
* Mails information about HCTC to PBGC beneficiaries; 
* Submits names of potentially eligible individuals to HCTC program 
monthly.

Entity: Federal agencies: HHS; 
Responsibility or action: 
* CMS administers the high-risk pool grants.

Entity: State agencies: State workforce agency; 
Responsibility or action: 
* Provides information about HCTC to trade-affected workers; 
* Certifies workers for TAA benefits; 
* Submits names of potentially eligible individuals to HCTC program 
daily.

Entity: State agencies: State department of insurance; 
Responsibility or action: 
* Certifies state-qualified plans, if state elects to make additional 
coverage options available; 
* Submits list of state-qualified plans to HCTC program.

Entity: Private entities: Health plans, plan administrators; 
Responsibility or action: 
* Automatic options (COBRA, individual market coverage): accept advance 
HCTC payments from IRS if the plan elects to participate; 
* State- qualified options: meet consumer protection requirements and 
accept advance HCTC payments from IRS. 

Sources: HCTC program office documents and interviews with officials 
from IRS's HCTC program office, Labor, PBGC, HHS, state agencies, and 
health plans.

[End of table]

Process for Enrolling for Advance HCTC and Claiming End-of-Year HCTC:

Enrolling for the advance HCTC involves multiple entities, including 
federal agencies, a state workforce agency, and health plans. Potential 
eligibility begins with a qualifying event--either a worker loses 
employment as a result of foreign competition or a retiree's pension 
plan is terminated. These individuals must then undergo an eligibility 
determination process for TAA or have PBGC assume payment of their 
pension.

The enrollment process for HCTC can begin once a state sends to the 
HCTC program office the names of individuals receiving or eligible for 
income support through the trade readjustment allowance or PBGC sends a 
list of names of beneficiaries aged 55 or older. The HCTC program 
office mails an HCTC package to each of these individuals. Individuals 
may enroll for the advance HCTC if they meet the eligibility criteria, 
which include purchasing qualified health coverage. Once an individual 
successfully enrolls for the advance HCTC, the HCTC program office 
sends an invoice for the individual's 35 percent share of the premium, 
and, when this payment is received, the remaining 65 percent is added 
and the full premium amount is forwarded to the participating health 
plan. Figure 1 provides an overview of the steps required for TAA 
recipients and PBGC beneficiaries to enroll for the advance HCTC and to 
have payments made to the qualifying health plan in which they enroll.

Figure 1: Steps for TAA Recipients and PBGC Beneficiaries to Qualify 
for, Enroll in, and Receive the Advance HCTC:

[See PDF for image]

[A] Groups eligible to file a petition for TAA certification include 
three or more workers, a labor union that represents the workers, 
officials from the affected company, and the state dislocated workers 
unit.

[End of figure]

End-of-year HCTC recipients must complete many, but not all, of the 
steps outlined above for advance HCTC enrollees. They must experience a 
qualifying event, be determined eligible for the trade readjustment 
allowance or PBGC payments, have their names sent to the HCTC program 
office by a state workforce agency or PBGC, and have qualified health 
coverage. Instead of enrolling with the HCTC program office, however, 
individuals claiming the end-of-year HCTC must submit required 
documents, which include proof of premium payment and a form designed 
for the HCTC, to the IRS along with their federal tax return. In 
addition, individuals who receive the advance HCTC may also claim the 
end-of-year HCTC for the months that they did not receive the advance 
HCTC, including months prior to August 2003, when the advance credit 
was first made available, and the months during the enrollment process 
before advance payments are made to their health plans.

More Than 19,000 Individuals Received HCTC for 2003, but Participation 
May Have Been Limited by Several Factors:

For 2003, 19,410 individuals received about $37 million in payments for 
themselves and dependents for the advance and end-of-year HCTC, the 
majority by filing for the credit on their end-of-year tax return. For 
July 2004, enrollment for the advance HCTC was about 13,200, about 60 
percent of whom were PBGC beneficiaries. An HCTC program office survey 
in October 2003 (early in the implementation of the advance HCTC) 
indicated that advance HCTC enrollees were, on average, older and had 
lower incomes and educational attainment than nonenrollees, but both 
groups reported similar health status. Comparable data for end-of-year 
HCTC recipients and nonrecipients were not available. According to 
officials from states, qualified health plans, and a union, several 
factors may have limited the participation in the advance and end-of-
year HCTC to date. These factors include the newness of the program, 
the fragmentation and complexity of the TAA certification and HCTC 
eligibility determination and enrollment processes, the length of time-
-typically 3 to 6 months--that the individual must pay the full premium 
while establishing eligibility for and enrolling in the advance 
payment, and the ongoing cost of the individual's share of the premium 
once the advance HCTC payments have begun.

More Than 19,000 Individuals Received HCTC Benefits Totaling $37 
Million in 2003:

For 2003, about $37 million was paid on behalf of 19,410 HCTC 
recipients, most of whom (12,594 individuals) claimed the HCTC solely 
on their end-of-year tax return. Many of these individuals may have 
received the HCTC to pay for qualified health insurance covering 
dependents as well as themselves, but data were not available on the 
number of dependents covered by the end-of-year HCTC. The advance HCTC 
became available in August 2003, and 3,696 individuals received both 
the advance HCTC--for the months beginning on or after August--and the 
end-of-year HCTC--for the months they paid 100 percent of their 
insurance premium. Another 3,120 individuals received the HCTC only in 
the form of an advance payment.[Footnote 28] (See fig. 2.) Of the $37 
million paid, about $23.8 million was paid on behalf of those who filed 
solely for the end-of-year HCTC, $2.8 million for those receiving the 
advance HCTC only, and $10.7 million for those who claimed both forms 
of the credit. According to the HCTC program office, for 2003, about 
24,000 taxpayers filed claims for the end-of-year HCTC, and about 8,000 
of these claims were denied. Some of the individuals whose claims for 
the end-of-year credit were denied were not on the list of potentially 
eligible individuals prepared by the state workforce agencies and PBGC. 
In addition, some of those denied were age 65 or older.

Figure 2: Number of Individuals Receiving the End-of-Year HCTC, Advance 
HCTC, and Both Forms of the HCTC for Themselves and Dependents, 2003:

[See PDF for image]

Note: Data for tax year 2003 were reported by IRS as of May 2004 and 
could change for later filers, amended returns, or further changes 
resulting from ongoing audits. In addition, some individuals were 
enrolled for advance payments and might have been sent an invoice for 
their 35 percent premium share, but the payments had not yet been made. 
Payments made after December 11, 2003 were considered to be credits for 
January 2004 premiums and not included in the totals received for 2003.

[End of figure]

Enrollment for Advance HCTC Was 13,200 in the Month of July 2004:

Enrollment for the advance HCTC increased from about 4,000 individuals 
at the start of the program to about 13,200 individuals in July 
2004.[Footnote 29] (See table 2.) In this month, roughly 40 percent of 
enrollees were TAA recipients, while the remaining 60 percent were PBGC 
beneficiaries. Individuals also used the advance HCTC to cover their 
qualified family members. In May 2004, approximately 12,900 individuals 
were enrolled to receive the advance HCTC for themselves and about 
7,800 family members.

Table 2: Monthly HCTC Potentially Eligible Population and Enrollment 
for the Advance HCTC, September 2003 through July 2004:

September 2003[C]; 
Potentially eligible population[A]: TAA: 85,908; 
Potentially eligible population[A]: PBGC: 113,666; 
Potentially eligible population[A]: Total: 199,574; 
Total enrollment[B]: 4,008.

October 2003; 
Potentially eligible population[A]: TAA: 89,709; 
Potentially eligible population[A]: PBGC: 139,210; 
Potentially eligible population[A]: Total: 228,919; 
Total enrollment[B]: 5,826.

November 2003; 
Potentially eligible population[A]: TAA: 90,111; 
Potentially eligible population[A]: PBGC: 142,057; 
Potentially eligible population[A]: Total: 232,168; 
Total enrollment[B]: 7,131.

December 2003; 
Potentially eligible population[A]: TAA: 91,593; 
Potentially eligible population[A]: PBGC: 143,149; 
Potentially eligible population[A]: Total: 234,742; 
Total enrollment[B]: 8,374.

January 2004; 
Potentially eligible population[A]: TAA: 94,936; 
Potentially eligible population[A]: PBGC: 154,399; 
Potentially eligible population[A]: Total: 249,335; 
Total enrollment[B]: 9,318.

February 2004; 
Potentially eligible population[A]: TAA: 95,799; 
Potentially eligible population[A]: PBGC: 154,181; 
Potentially eligible population[A]: Total: 249,980; 
Total enrollment[B]: 10,246.

March 2004; 
Potentially eligible population[A]: TAA: 89,628; 
Potentially eligible population[A]: PBGC: 158,662; 
Potentially eligible population[A]: Total: 248,290; 
Total enrollment[B]: 11,344.

April 2004; 
Potentially eligible population[A]: TAA: 91,220; 
Potentially eligible population[A]: PBGC: 155,182; 
Potentially eligible population[A]: Total: 246,402; 
Total enrollment[B]: 12,166.

May 2004; 
Potentially eligible population[A]: TAA: 89,491; 
Potentially eligible population[A]: PBGC: 146,443; 
Potentially eligible population[A]: Total: 235,934; 
Total enrollment[B]: 12,896.

June 2004; 
Potentially eligible population[A]: TAA: 87,777; 
Potentially eligible population[A]: PBGC: 147,452; 
Potentially eligible population[A]: Total: 235,229; 
Total enrollment[B]: 13,222.

July 2004; 
Potentially eligible population[A]: TAA: 81,362; 
Potentially eligible population[A]: PBGC: 147,682; 
Potentially eligible population[A]: Total: 229,044; 
Total enrollment[B]: 13,194. 

Source: IRS's HCTC program office.

Note: Approximately 17,900 individuals had enrolled for the advance 
HCTC at some time from August 2003 through July 2004.

[A] Not all individuals initially identified as potentially eligible 
will meet all eligibility criteria for the HCTC.

[B] Includes individuals who have completed the advance HCTC enrollment 
process but for whom advance payments have not started.

[C] The number of potential eligibles for September includes partial 
data for the month of August--the first month the program was 
operational--thereby overstating the number of potentially eligible 
individuals in September by approximately 10 percent.

[End of table]

Nationwide, as of July 2004, Pennsylvania had the highest number of 
individuals enrolled for the advance HCTC (2,265), followed by North 
Carolina (1,636) and Ohio (1,090). Most individuals enrolled for the 
advance HCTC were clustered in nine states--Illinois, Indiana, 
Maryland, Michigan, North Carolina, Ohio, Pennsylvania, Virginia, and 
West Virginia. These nine states accounted for two-thirds of all 
individuals enrolled for the advance HCTC, although fewer than half of 
all potentially eligible individuals resided in these states. Several 
of these states recently experienced large trade-related layoffs at 
steel and textile companies. For example, Pillowtex, a household 
textile manufacturer headquartered in North Carolina, closed 
manufacturing and distribution facilities in North Carolina and 
Virginia and terminated more than 4,500 employees in July 2003. In 
April 2003, PBGC assumed pension plan payments for 95,000 workers and 
retirees from the Pennsylvania-headquartered Bethlehem Steel 
Corporation. (See app. I for the number of individuals enrolled for the 
advance HCTC by state.)

Determining the actual rate of participation in the HCTC is difficult 
because reliable data on the total number of individuals actually 
eligible for the HCTC are not available. States and PBGC are 
responsible for identifying and reporting individuals who are eligible 
for TAA and PBGC benefits, while the responsibility for assessing the 
health coverage and tax eligibility HCTC criteria lies with the HCTC 
program office. Therefore, individuals identified by states and PBGC 
are considered only potentially eligible for the HCTC because IRS also 
needs to determine that they meet health coverage and tax criteria 
before receiving the HCTC. Some of the individuals identified by states 
and PBGC as potentially eligible may have other health coverage that 
would disqualify them from receiving the HCTC. For example, the October 
2003 HCTC program office survey found that about half of those 
identified as TAA recipients or PBGC beneficiaries, but who were not 
enrolled for the advance HCTC, were in fact ineligible because they had 
other coverage, such as Medicare or through a spouse's employer. 
Similarly, in the HCTC program office's February 2004 survey, many 
respondents reported multiple reasons that made them ineligible for the 
HCTC, including being claimed as a dependent on someone else's tax 
return, not meeting the age eligibility criteria, or having other 
health coverage from sources such as the military or the Federal 
Employees Health Benefits Program.

Advance HCTC Enrollees Were Older and Had Lower Income Than 
Nonenrollees:

Based on an HCTC program office survey of 1,200 respondents conducted 
in October 2003, advance HCTC enrollees were, on average, older, were 
less likely to have children, and had lower income than potentially 
eligible nonenrollees.[Footnote 30] Both groups, however, reported 
similar health status. Specifically, advance HCTC enrollees were an 
average of 4 years older than nonenrollees, had 12 percent lower 
household pretax income, and lower educational attainment than 
nonenrollees. There was no statistically significant difference in 
self-reported health status between enrollees and nonenrollees in the 
advance HCTC program. Seventy-four percent or more of enrollees and 
nonenrollees reported being in good health, while 3 percent of 
enrollees and 6 percent of nonenrollees rated their health as poor. 
(See table 3.) Demographic data for those who received the end-of-year 
HCTC were not available at the time of our analysis.

Table 3: Demographic Characteristics of the Advance HCTC Potentially 
Eligible Population, October 2003:

Characteristic: Average age; 
Enrolled individuals: 58; 
Nonenrolled individuals[A]: 54.

Characteristic: Average age for PBGC; 
Enrolled individuals: 60; 
Nonenrolled individuals[A]: 59.

Characteristic: Average age for TAA; 
Enrolled individuals: 51; 
Nonenrolled individuals[A]: 47.

Characteristic: Average household size; 
Enrolled individuals: 2; 
Nonenrolled individuals[A]: 2.3.

Characteristic: Percentage with children in their household; 
Enrolled individuals: 14%; 
Nonenrolled individuals[A]: 30%.

Characteristic: Pretax median household income; 
Enrolled individuals: $30,000; 
Nonenrolled individuals[A]: $34,000.

Characteristic: Percent with at least some college education; 
Enrolled individuals: 42%; 
Nonenrolled individuals[A]: 48%.

Characteristic: Percentage employed; 
Enrolled individuals: 17%; 
Nonenrolled individuals[A]: 37%.

Characteristic: Self-reported health status (percentage): Good; 
Enrolled individuals: 77%; 
Nonenrolled individuals[A]: 74%.

Characteristic: Self-reported health status (percentage): Fair; 
Enrolled individuals: 19%; 
Nonenrolled individuals[A]: 20%.

Characteristic: Self-reported health status (percentage): Poor; 
Enrolled individuals: 3%; 
Nonenrolled individuals[A]: 6%. 

Source: IRS's HCTC program office survey.

Note: In October 2003, the HCTC program office surveyed 603 individuals 
enrolled for the advance HCTC and 604 individuals reported by the state 
workforce agencies and PBGC as potentially eligible but not enrolled 
for the advance HCTC. The survey response rate was 59 percent.

[A] In February 2004, the HCTC program office conducted a second survey 
of 600 individuals who were potentially eligible, but not enrolled, for 
the advance HCTC. Although the 2004 survey had a higher proportion of 
PBGC beneficiaries, the demographic characteristics of those not 
enrolled for the advance HCTC in 2003 and 2004 were similar in most 
respects.

[End of table]

Several Factors May Limit the Number of Individuals Who Receive the 
HCTC:

According to officials we interviewed from states, participating 
qualified health plans, and a union representing affected workers, the 
number of individuals receiving the HCTC was lower than expected. We 
identified several factors that may help explain the limited number of 
individuals receiving the advance and end-of-year HCTC to date. In 
addition to the newness of the advance payment option, these factors 
included the fragmentation and complexity of the eligibility and 
enrollment process, the gap in time before the advance payments are 
available, and the affordability of the individual's share of the 
premiums.

State workforce agency and health plan officials reported that the 
process for trade-displaced workers to become eligible and enroll for 
the HCTC was fragmented and complex. Between the time workers lost 
employment and the time they enrolled for the advance HCTC, they 
interacted with two different federal agencies (Labor and IRS), their 
state's workforce agency, and a health plan. Each entity performed a 
discrete part of the eligibility determination and enrollment process, 
without any single entity being responsible for overall coordination. 
In four of the eight states we reviewed, workforce officials reported 
that displaced workers seeking help with the advance HCTC often had to 
make multiple calls to different federal and state agencies. For 
example, a state workforce agency official reported that displaced 
workers who called the HCTC program office about the advance HCTC--
prior to their name being sent from the state--were referred to Labor, 
which in turn referred them back to the state workforce 
agency.[Footnote 31] An official from another state workforce agency 
reported that the state workforce agency does not deal with health 
coverage issues, so displaced workers who called with questions or 
difficulties about their health plan were referred to the HCTC program 
office or the health plan. State and union officials reported that this 
level of fragmentation could be difficult to navigate, especially for 
individuals with limited education or those who worked in large 
companies and were accustomed to centrally coordinated benefits 
administration.

Currently, individuals must navigate the eligibility and enrollment 
process largely on their own. State and health plan officials suggested 
developing a coordinated outreach strategy to help individuals who have 
difficulty with the advance HCTC enrollment process. For example, 
officials reported that HCTC information sessions attended by 
representatives from the PBGC, state workforce agencies, HCTC program, 
and qualified health plans were held in some states that had 
experienced large layoffs. According to officials, these information 
sessions helped bring all the key players together in one location and 
enabled individuals to walk from one station to the next and complete 
the enrollment process on the same day, if they chose to.

State officials reported that the requirement that individuals first 
qualify for the trade readjustment allowance--income support available 
under the TAA program after unemployment insurance is exhausted--added 
to the time and complexity of the advance HCTC eligibility and 
enrollment process and could limit participation. Individuals cannot 
qualify for the trade readjustment allowance until at least 60 days 
after the petition for TAA certification has been filed with Labor. In 
addition, in order to qualify for this benefit, individuals must be in 
training or have a waiver from training, which must be recertified 
monthly by the state workforce agency.[Footnote 32] State officials 
said that removing the requirement to first qualify for the trade 
readjustment allowance would expedite the enrollment process and could 
enable additional dislocated workers to receive the advance HCTC.

Another factor that complicates and could limit participation in the 
advance HCTC is the time required to enroll for the advance HCTC. In 
our survey of state workforce agencies conducted in March 2004, 30 
states responded that TAA recipients had difficulty receiving the HCTC, 
and 17 of these 30 states reported that it took too long for eligible 
individuals to receive the advance HCTC because of the way the 
enrollment process was structured. The multiagency, multistep process 
for eligibility determination and enrollment resulted in a significant 
gap between the time individuals lost employment or their retirement 
plan was terminated and the time they began receiving the advance HCTC. 
It typically took from 4 to 6 months for newly displaced trade-affected 
workers to become eligible for and receive the first advance payment. 
(See fig. 3.) For new PBGC beneficiaries, the time required to become 
eligible for and receive the first advance payment typically was 3 to 6 
months.

Figure 3: Estimated Typical Timeline for Trade-Affected Workers to 
Receive Advance HCTC:

[See PDF for image]

Note: The time frames for each step may vary beyond the estimates shown 
above.

[A] Groups eligible to file a petition for TAA certification include 
three or more workers, a labor union that represents the workers, 
officials from the affected company, and the state dislocated workers 
unit. Petitions for certification are not typically filed at the same 
time individuals lose their jobs. In some cases, workers may already be 
covered by a certification when they lose their jobs or the petition 
may be filed weeks or months after their employment ends.

[B] Individuals do not qualify for the trade readjustment allowance 
until at least 60 days after the petition for TAA certification has 
been filed with Labor.

[C] The number of weeks it takes to receive the advance payment depends 
in part on how quickly individuals provide the HCTC program office with 
all information needed to enroll for advance payment and whether the 
health plan is already registered to receive advance payments.

[End of figure]

The elapsed time in becoming eligible and enrolling for the advance 
HCTC also meant that in some instances individuals potentially eligible 
for the HCTC were required to make certain decisions that would affect 
future health coverage for themselves or their spouse before they knew 
whether they would be eligible to receive the advance HCTC. For 
example, some displaced workers are offered the option of paying for 
COBRA coverage at the time of separation from their employers, and 
individuals who enroll in COBRA may use the advance HCTC to pay 65 
percent of their COBRA premiums once they have completed the advance 
HCTC enrollment process, which typically can take 3 to 6 
months.[Footnote 33] Eligible individuals who decline COBRA coverage--
such as for affordability concerns--or do not have COBRA as an option 
and become uninsured for more than 63 days risk losing guaranteed 
access to state-qualified health coverage and other consumer 
protections.[Footnote 34] Because it typically takes 3 to 6 months 
after losing employment before beginning to receive the advance HCTC, 
maintaining coverage for this 63-day period can be very expensive for 
displaced workers, and some may opt not to pay for this coverage in 
part because they have difficulty affording it. In our survey of state 
workforce agencies, 20 of the 30 states that said that TAA recipients 
had difficulty receiving the HCTC reported that breaks in coverage of 
63 days or more are causing individuals to lose access to one or more 
consumer protections, such as guaranteed access to coverage or no 
preexisting condition exclusions. However, officials we interviewed 
from five state-qualified HCTC health plans reported that they have 
voluntarily extended one or more consumer protections to individuals 
with more than a 63-day break in coverage, for example offering all 
HCTC applicants guaranteed access to coverage and in some cases waiving 
preexisting condition exclusions for enrollees. Some of these health 
plan officials indicated that the decision to offer all HCTC applicants 
the same consumer protections was made for ease of administration, and 
this practice may be revoked in the future at the discretion of the 
plan.

State, health plan, and union officials also expressed concern about 
gaps in HCTC program eligibility rules that can affect the spouses and 
other dependents of PBGC beneficiaries who enroll in Medicare. 
Specifically, when a PBGC beneficiary enrolls in Medicare, the 
beneficiary loses eligibility for the HCTC. According to current 
eligibility rules, the spouses and other dependents of these 
individuals also lose eligibility for the HCTC even if they are not yet 
eligible for Medicare. A union official reported that when some PBGC 
beneficiaries attended an HCTC information session and became aware of 
this rule, they expressed reservations about enrolling in the HCTC, 
stating that they needed more time to think about whether to apply.

According to state workforce officials, health plan officials, and 
union representatives we contacted, the affordability of qualified HCTC 
coverage was another factor affecting participation rates. HCTC-
eligible individuals have either lost employment, often involving a 
reduction in income, or retired and are receiving a fixed pension from 
PBGC. Research indicates that as premiums consume an increasing share 
of income, participation rates decline. For example, one study found 
that, among populations with incomes up to 300 percent of the federal 
poverty level,[Footnote 35] more than half of the target population 
would participate when premiums represent 1 percent of income, but only 
one-sixth would participate when premiums represent 5 percent of 
income.[Footnote 36]

The affordability of qualified health coverage options can be 
problematic even with the HCTC. During the 1-to 3-month period before 
the health plan receives the first premium payment from the HCTC 
program, HCTC enrollees are required to pay 100 percent of the premium 
out of pocket, which for a single person would represent 36 percent and 
for two persons would represent 72 percent of the average monthly 
unemployment insurance benefit of about $1,128.[Footnote 37] The 
ongoing 35 percent share of the average HCTC premiums in mid-2004 for a 
health plan covering a single individual and a plan covering a single 
individual and one other family member would have required 13 percent 
and 25 percent, respectively, of the average monthly unemployment 
insurance benefit. In addition to these premium costs, HCTC enrollees 
must pay any deductibles, coinsurance, or copayments that are required 
by their health plan.[Footnote 38]

In our survey of state workforce agencies, 24 of 30 states reporting 
that TAA recipients had difficulty receiving the HCTC said that the 
ability to pay premiums while waiting to receive the advance HCTC was a 
factor contributing to this difficulty. In addition, 22 of the 30 
states indicated that the lack of affordable health coverage was a 
reason individuals may be having difficulty participating in HCTC. The 
state workforce, health plan, and union officials we interviewed 
reported that, even with a 65 percent subsidy, the remaining 35 percent 
share might cost too much to be affordable for many displaced workers 
and retirees.

Majority of Advance HCTC Enrollees Purchased COBRA; Benefits and Costs 
Varied with Type of Qualified Coverage:

From August 2003 through April 2004, 60 percent of advance HCTC 
enrollees obtained coverage through automatically qualified health 
plans, primarily COBRA, and 40 percent of individuals receiving the 
advance HCTC purchased coverage through a state-qualified plan. 
Comparable data on the coverage purchased by end-of-year recipients 
were not available. More than two-thirds of the states designated 
state-qualified plans, with most states choosing to provide coverage 
through arrangements with insurers or high-risk pools. The types of 
benefits available for purchase with the HCTC varied both within and 
across the different automatic and state-qualified coverage options. 
For example, COBRA plans, which were a continuation of employer-
sponsored group market coverage, tended to offer lower deductibles than 
state-qualified high-risk pools and more comprehensive benefits than 
the coverage provided through arrangements with insurers, most of which 
were individual market plans. The cost of HCTC coverage for advance 
credit enrollees varied widely depending on the number of people 
covered, the type of coverage purchased, and whether the HCTC enrollee 
was a TAA recipient or a PBGC beneficiary. The cost of HCTC coverage 
was also affected by the different ways in which premiums are set in 
the group and individual market.

Majority of Advance HCTC Enrollees Purchased Automatically Qualified 
Coverage, and 40 Percent Enrolled in State-Qualified Plans:

Cumulatively, from the time the advance credit became available in 
August 2003 through April 2004, the majority (60 percent) of advance 
HCTC enrollees obtained coverage through one of the automatically 
qualified coverage options specified in the TAA Reform Act. Most HCTC 
enrollees (56 percent) used the advance HCTC to purchase COBRA 
coverage, while 4 percent remained enrolled in the individual market 
plans they held 30 days prior to the separation from employment that 
resulted in their becoming eligible for TAA benefits or PBGC payments 
(see fig. 4).

Figure 4: Percentage of Advance HCTC Enrollees with COBRA, Individual 
Market, and State-Qualified Plans, through April 2004:

[See PDF for image]

Note: Percentages represent the cumulative number of individuals 
enrolled for the advance HCTC from August 2003 through April 2004.

[A] IRS's HCTC program office could not provide data separately for 
state-qualified high-risk pools, arrangements with insurers, or mini-
COBRA plans.

[B] Refers to automatically qualified individual market coverage.

[End of figure]

Nationwide, about two-thirds of TAA recipients enrolled for the advance 
HCTC purchased COBRA coverage, whereas about one-half of PBGC 
beneficiaries enrolled for the advance HCTC selected COBRA plans and 
one-half selected state-qualified plans. Only a small percentage of 
advance HCTC enrollees of either type purchased automatically qualified 
individual market coverage. (See fig. 5.)

Figure 5: Percentage of Advance HCTC TAA Recipients and PBGC 
Beneficiaries with COBRA, Individual Market, and State-Qualified Plans, 
by Eligibility Type, through April 2004:

[See PDF for image]

Notes: Totals may not add to 100 percent because of rounding. 
Percentages represent the cumulative number of individuals receiving 
advance HCTC from August 2003 through April 2004.

[A] IRS's HCTC program office could not provide data separately for 
state-qualified high-risk pools, arrangements with insurers, or mini-
COBRA plans.

[B] Refers to automatically qualified individual market coverage.

[End of figure]

More than Two-Thirds of States Designated State-Qualified HCTC Plans:

As of July 2004, 36 states had designated state-qualified HCTC coverage 
options, and about 84 percent of all individuals identified as 
potentially eligible to receive the HCTC lived in these states. Most 
states providing state-qualified coverage did so through arrangements 
with one or more insurers (18 states) or high-risk pools (17 states). 
Three states (Indiana, Maryland, and Texas) designated both their high-
risk pool and an arrangement with an insurer as state-qualified HCTC 
plans. Thirteen states designated mini-COBRA plans, and in 4 of these 
13 states (Kentucky, Missouri, New Jersey, and Wisconsin) mini-COBRA 
plans were the only state-qualified coverage option available. Federal 
officials reported that few individuals eligible to receive the HCTC 
had access to mini-COBRA coverage because the number of TAA recipients 
and PBGC beneficiaries whose former employer had fewer than 20 
employees--thereby making them eligible for mini-COBRA coverage--was 
estimated to be very small. (See app. II for a list of state-qualified 
HCTC coverage options by state.)

According to the HCTC program office, 15 states--whose combined 
population represented less than one-fifth of all individuals 
potentially eligible to receive the HCTC--had yet to make a state-
qualified HCTC plan available as of July 2004. Three of these states--
Arizona, Idaho, and Washington--have designated state-qualified plans, 
but these plans were not open to enrollment as of July 2004. Among 
states that have not designated a state-qualified plan, California had 
the largest number of potentially eligible individuals. State workforce 
and insurance department officials in California reported that because 
no health plans in the state had agreed to participate in the HCTC 
program, potentially eligible individuals without access to COBRA or 
another automatically qualified coverage option were unable to use the 
HCTC because they could not purchase qualified coverage.

In the 15 states that did not make a state-qualified HCTC plan 
available, some potentially eligible individuals may not have been able 
to use the HCTC to purchase automatically qualified coverage. Although 
the extent to which this has occurred is unknown, there are several 
reasons why potentially eligible individuals in these states may be 
unable to receive the HCTC. First, if a former employer discontinued 
its employee health coverage, individuals potentially eligible for the 
HCTC would not likely have access to a COBRA plan. According to a 
Commonwealth Fund study, federal officials estimate that between 40 
percent and 60 percent of individuals eligible to receive the HCTC 
likely do not have access to COBRA coverage.[Footnote 39] In addition, 
individuals who have COBRA coverage and are eligible to receive the 
HCTC for longer than the 18 to 36 months that COBRA is available will 
also need to enroll in another form of qualified coverage when their 
COBRA benefits expire in order to maintain the HCTC. Second, 
individuals with coverage through their spouses' employer may not 
qualify for the HCTC because many companies that offer health coverage 
contribute more than 50 percent toward the cost of their workers' 
health coverage premium--both for the cost of coverage for an 
individual worker and for the cost of family coverage. In 2003, for 
example, the average percentage of total premiums paid by employers for 
family coverage was 73 percent.[Footnote 40] Third, HCTC program office 
officials reported that only a small percentage of individuals were 
likely to have purchased coverage in the individual market at least 30 
days prior to the separation from employment that resulted in their 
becoming eligible for TAA benefits or PBGC payments. While these 
officials could not provide a precise estimate, a national survey 
reported that fewer than 6 percent of all working Americans purchased 
individual market coverage in 2002.[Footnote 41]

Benefits Varied Across and Within HCTC Coverage Options:

The benefits offered to HCTC recipients varied across coverage types 
and from plan to plan. In the seven states we reviewed that designated 
state-qualified health plans, we found that COBRA coverage generally 
included lower deductibles than high-risk pools and offered more 
comprehensive benefits than arrangements with insurers. When health 
plans offered a choice among benefit packages or deductible amounts, 
HCTC recipients typically selected more comprehensive benefits and 
lower deductibles.

COBRA benefits are typically identical to the benefits provided to 
working individuals covered by an employer's group market health plan. 
The majority of health plans offered by employers in 2003 provided 
coverage for mental health services and prescription drugs, with 
preferred provider organization (PPO) health plans having an average 
annual deductible of $275.[Footnote 42] (See table 4.) In addition, the 
Pregnancy Discrimination Act requires employers with 15 or more 
employees to cover expenses for maternity services on the same basis as 
coverage for other medical conditions.[Footnote 43]

Table 4: Benefits Most Commonly Included in Employer-Sponsored Group 
Market PPO Coverage, 2003:

Benefit: Annual deductible; 
Description: 
$275 average annual deductible for in-network services.[A]; 
* 79 percent had a deductible of $499 or less; 
* 93 percent had a deductible of $999 or less.

Benefit: Mental health; 
Description: 
* 99 percent provided coverage for both inpatient and outpatient mental 
health services; 
* 72 percent covered at least 21 days of inpatient care per year; 
* 65 percent covered at least 21 outpatient visits per year.

Benefit: Prescription drugs; 
Description: 
* 99 percent provided coverage for prescription drugs; 
* 92 percent did not require a separate deductible for prescription 
drugs.[B]; 
* Average copayments for prescription drugs were $9 for generic 
products, $19 for preferred brand-name products, and $29 for 
nonpreferred brand-name products.[B]. 

Source: Henry J. Kaiser Family Foundation and Health Research and 
Educational Trust, Employer Health Benefits 2003 Annual Survey (Menlo 
Park, Calif., and Chicago: 2003).

[A] Average deductible for one-person coverage.

[B] Information applies to all employer-sponsored health plans and is 
not specific to PPO plans.

[End of table]

The majority of the 36 states that designated state-qualified health 
plans did so through arrangements with one or more insurers selling 
individual market coverage. Of the 7 states we reviewed with state-
qualified health plans, 6 provided state-qualified HCTC coverage 
through an arrangement with one or more insurers, all of which sold 
coverage in the individual market (see table 5).[Footnote 44]

Table 5: State-Qualified Coverage Types for HCTC Recipients in Seven 
States:
State: Illinois; 
High-risk pool: Yes; 
Arrangement with one or more insurers: No; 
Mini-COBRA[A]: No.

State: Maryland; 
High-risk pool: Yes; 
Arrangement with one or more insurers: Yes; 
Mini-COBRA[A]: No.

State: New York; 
High-risk pool: No; 
Arrangement with one or more insurers: Yes; 
Mini-COBRA[A]: Yes.

State: North Carolina; 
High-risk pool: No; 
Arrangement with one or more insurers: Yes; 
Mini-COBRA[A]: No.

State: Ohio; 
High-risk pool: No; 
Arrangement with one or more insurers: Yes; 
Mini-COBRA[A]: Yes.

State: Pennsylvania; 
High-risk pool: No; 
Arrangement with one or more insurers: Yes; 
Mini-COBRA[A]: No.

State: Texas; 
High-risk pool: Yes; 
Arrangement with one or more insurers: Yes; 
Mini-COBRA[A]: No. 

Source: IRS's HCTC program office.

Note: The eighth state we reviewed, California, did not designate any 
state-qualified coverage for HCTC recipients.

[A] According to federal officials, few individuals eligible to receive 
the HCTC likely had access to mini-COBRA coverage.

[End of table]

Health coverage purchased in the individual market typically includes 
more restrictions on covered benefits and higher deductibles than group 
market coverage offered through an employer.[Footnote 45] In the six 
states we reviewed that designated arrangements with insurers as state-
qualified plans, we typically found higher deductibles and one or more 
restrictive benefit limitations for maternity care, mental health 
coverage, and prescription drugs than would be typical for employer-
sponsored group market coverage, including COBRA plans. Limitations on 
these benefits included lower maximums on annual or lifetime coverage, 
higher cost sharing, or, in some cases, no coverage at all. For 
example:

* One state-qualified HCTC health plan in Texas did not offer any 
coverage for maternity care except for treatment of pregnancy-related 
complications.

* One state-qualified HCTC plan in Ohio limited mental health coverage 
to 10 days of inpatient coverage and 10 outpatient visits per year.

* State-qualified health plans in Maryland, New York, and Pennsylvania 
required a separate deductible for prescription drug coverage, while 
one state-qualified health plan in Ohio did not provide coverage for 
brand name prescription drugs.

Appendix III provides more information on the variation in benefits 
across state-qualified HCTC plans in the seven states we reviewed that 
had state-qualified plans.

State-qualified HCTC plans provided through arrangements with insurers 
in four of these six states offered HCTC recipients a choice of 
deductibles--ranging from $250 to $5,000--while plans with no 
deductible were available in New York and some counties in 
Pennsylvania. When offered a choice among deductible amounts, the 
majority of HCTC recipients in these four states generally purchased 
coverage with the lowest deductibles available, typically $1,000 or 
less. (See table 6.)

Table 6: Deductible Amounts in Selected Plans in Six States with State-
Qualified Arrangements with One or More Insurers:

State[A]: Maryland; 
Minimum deductible offered: $800; 
Maximum deductible offered: $800; 
Deductible most commonly selected by HCTC recipients: [B].

State[A]: New York; 
Minimum deductible offered: [C]; 
Maximum deductible offered: [C]; 
Deductible most commonly selected by HCTC recipients: [C].

State[A]: North Carolina[D]; 
Minimum deductible offered: $250; 
Maximum deductible offered: $2,500; 
Deductible most commonly selected by HCTC recipients: $250.

State[A]: Ohio; 
Minimum deductible offered: $500; 
Maximum deductible offered: $5,000; 
Deductible most commonly selected by HCTC recipients: $500.

State[A]: Pennsylvania; 
Minimum deductible offered: $750; 
Maximum deductible offered: $1,500; 
Deductible most commonly selected by HCTC recipients: $750.

State[A]: Texas; 
Minimum deductible offered: $500; 
Maximum deductible offered: $5,000; 
Deductible most commonly selected by HCTC recipients: $1,000. 

Sources: Interviews with health plan officials and reviews of health 
plan Web sites, brochures, and benefit summaries.

Notes: Deductible options are for one-person coverage and apply to 
services received within the health plan's network, if applicable. Of 
the eight states we reviewed, California did not designate a state-
qualified plan and Illinois did not designate an arrangement with an 
insurer as a state-qualified plan.

[A] Some states provided state-qualified HCTC coverage through 
arrangements with more than one insurer. In these instances, we 
selected the insurer with the highest HCTC enrollment, except in New 
York. In New York, HCTC enrollment data were not available for each 
insurer; we reviewed plans offered by an insurer that served areas in 
which companies had closed and HCTC-eligible individuals would likely 
have resided. The insurer with the largest HCTC enrollment in 
Pennsylvania sold coverage in both the central and western regions of 
the state. Only the coverage offered in the central region offered a 
choice of deductibles.

[B] The selected state-qualified plan in this state did not offer a 
choice in deductible amounts.

[C] None of the three state-qualified plans in New York that we 
reviewed had annual deductibles for services received within the plan's 
coverage network.

[D] North Carolina offered a choice between two different benefit 
packages, each with differing deductible options, sold by the same 
insurer. The data reported are for the benefit package most commonly 
purchased by HCTC recipients.

[End of table]

Three of the seven states we reviewed that had state-qualified health 
plans designated their high-risk pools as state-qualified plans. These 
state-qualified high-risk pools generally offered benefits similar to 
those offered in the employer-sponsored group market, but almost always 
required higher deductibles. Compared with the average $275 deductible 
for employer coverage in 2003, the high-risk pool deductibles available 
to HCTC recipients in the states we reviewed generally ranged from $500 
to $5,000. All of the qualified high-risk pools in these states 
provided HCTC recipients with a choice of deductibles, with the 
majority of HCTC recipients selecting the lowest option available in 
two of the three states. (See table 7.)

Table 7: Deductible Amounts in Selected Plans in Three States with 
State-Qualified High-Risk Pools:

State-qualified high-risk pool: Maryland: PPO option; 
Minimum deductible offered: $1,000; 
Maximum deductible offered: $1,000; 
Deductible most commonly selected by HCTC recipients: [A].

State-qualified high-risk pool: Maryland: EPO option[B]; 
Minimum deductible offered: [B]; 
Maximum deductible offered: [B]; 
Deductible most commonly selected by HCTC recipients: [B].

State-qualified high-risk pool: Illinois; 
Minimum deductible offered: $500; 
Maximum deductible offered: $5,000; 
Deductible most commonly selected by HCTC recipients: $500.

State-qualified high-risk pool: Texas; 
Minimum deductible offered: $500; 
Maximum deductible offered: $5,000; 
Deductible most commonly selected by HCTC recipients: $2,500. 

Sources: GAO interviews with health plan officials and reviews of 
health plan Web sites and benefit summaries.

Note: Of the eight states we reviewed, California did not designate a 
state-qualified plan and New York, North Carolina, Ohio, and 
Pennsylvania designated an arrangement with one or more insurers rather 
than a high-risk pool as the state-qualified plan.

[A] This plan option did not offer a choice in deductible amounts.

[B] Exclusive provider organizations (EPO), like HMOs, often use a 
physician as a gate keeper and have a limited provider network. Members 
of an EPO must typically remain within this network to receive 
benefits. Maryland's EPO did not have a deductible.

[End of table]

In addition to a choice of deductibles, state-qualified HCTC plans in 
three states (Maryland, North Carolina, and Pennsylvania) offered 
enrollees a choice of benefit packages. HCTC recipients in these three 
states typically selected the option providing more generous coverage, 
as in the following examples:

* The Maryland high-risk pool offered two plan options--a PPO plan with 
a $1,000 deductible and 20 percent coinsurance for most services, and 
an exclusive provider organization (EPO) plan with no deductible and 
$20, $30, and $250 copayments for physician visits, specialist visits, 
and hospital admissions, respectively. The majority of HCTC recipients 
(56 percent) selected the EPO plan.

* North Carolina provided state-qualified coverage through an 
arrangement with an insurer, which offered a choice between two benefit 
packages--one with more comprehensive coverage that included lower 
copayments for physician and hospital care and no separate deductible 
for prescription drugs, and a second option with higher copayments for 
physician and hospital care and a separate $200 prescription drug 
deductible. Most (80 percent) HCTC recipients selected the more 
comprehensive coverage.

* In western Pennsylvania, the state-qualified plan provided coverage 
for hospital and surgical expenses and certain preventive services with 
no deductible and no coinsurance.[Footnote 46] HCTC recipients also had 
the option to purchase a separate plan that added coverage for 
prescription drugs and physician and specialist visits, with these 
benefits subject to a $750 deductible and 20 percent coinsurance. 
Almost 90 percent of HCTC recipients purchased the optional coverage.

Cost of HCTC Health Coverage Varied Depending on Coverage Purchased:

The cost of qualified coverage for advance HCTC enrollees varied 
according to the number of individuals covered, whether the advance 
HCTC enrollee was a TAA recipient or a PBGC beneficiary, and the type 
of qualified coverage purchased. For example, in April 2004, the 
average total monthly premium for advance HCTC coverage--representing 
both the individual and federal share--was $404 for one person and $812 
for two people. In the eight states that we reviewed, the cost of 
coverage for HCTC recipients was partly determined by the premium-
setting practices of qualified health plans.

Cost of Advance HCTC Coverage Affected by Number of Individuals 
Covered, Type of Enrollee, and Type of Coverage:

The amount paid for qualified coverage by advance HCTC enrollees 
nationwide varied according to the number of individuals covered as 
well as whether the enrollees were eligible for the HCTC because they 
received TAA benefits or because they received PBGC payments. For 
example, the national average total advance HCTC premium--representing 
both the enrollee's 35 percent share and the government's 65 percent 
contribution--for a qualified plan covering one individual in April 
2004 was $404, versus $812 for a qualified plan that covered two 
individuals. PBGC beneficiaries, who were on average older than TAA 
recipients, typically paid more for advance HCTC coverage, both for 
COBRA as well as state-qualified plans. The average total premium for 
TAA recipients receiving the advance HCTC in April 2004 was $480, 
compared to $661 for advance HCTC enrollees receiving PBGC pension 
payments. Receipt of the advance HCTC reduced the share of the premium 
paid by enrollees, on average, to $168 for TAA recipients and $231 for 
PBGC beneficiaries. (App. IV provides average total monthly premiums by 
state for TAA recipients and PBGC beneficiaries receiving the advance 
HCTC.)

Monthly advance HCTC premium costs ranged widely nationwide, depending 
on the type of qualified coverage purchased (see fig. 6). State-
qualified HCTC coverage was, on average, more expensive than COBRA for 
plans that covered one individual or an individual and one other family 
member.[Footnote 47] However, when more than three individuals were 
covered on a plan, COBRA coverage was more expensive, on average, than 
the state-qualified options. These premium comparisons do not reflect 
differences in benefits among the different types of coverage.

Figure 6: National Range of Monthly Advance HCTC Premium Costs for One-
Person Coverage, by Plan Type, May 2004:

[See PDF for image]

Note: The most current data available from IRS on the range of monthly 
advance HCTC premium costs were from May 2004.

[A] IRS's HCTC program office could not provide premium data separately 
for state-qualified high-risk pools, arrangements with insurers, or 
mini-COBRA plans.

[B] Refers to automatically qualified individual market coverage.

[End of figure]

Even with the tax credit, most advance HCTC enrollees paid more for 
their 35 percent share of qualified coverage than individuals 
purchasing health coverage through an employer. For instance, in July 
2004, the average advance HCTC enrollee paid $137 for the 35 percent 
monthly share of COBRA coverage for one person or contributed $293 
toward family coverage. In comparison, according to a 2003 national 
survey on employer benefits, the average employee paid $42 per month to 
purchase one-person coverage or $201 per month for family coverage 
purchased through their employer.[Footnote 48] However, without the 65 
percent subsidy provided by the HCTC, the average advance HCTC enrollee 
continuing COBRA coverage would likely have had to pay the entire $390 
per month for one-person coverage or $837 per month for family 
coverage.

Cost of State-Qualified HCTC Coverage Affected by Premium-Setting 
Practices:

The cost of coverage for HCTC recipients within and across the eight 
states we reviewed was partly determined by health plans' premium-
setting practices. As they do for non-HCTC applicants, state-qualified 
health plans in the majority of states we reviewed that had designated 
such plans adjusted premium rates to take into account enrollees' 
demographic characteristics, including their health status. Other 
premium-setting practices affecting the cost of state-qualified HCTC 
coverage included raising premiums to compensate for offering coverage 
on a guaranteed issue basis and, in some cases, automatically charging 
HCTC recipients higher premiums than what would typically be charged 
for healthy individuals for whom they are not required to offer 
coverage on a guaranteed issue basis. Although most state-qualified 
health plans had not analyzed the extent to which HCTC recipients 
utilize services, preliminary evidence suggested that insurers have not 
found the majority of these individuals to be in poor health.

Health plans' premium-setting practices depended on the type of state-
qualified coverage offered. In four of the six states we reviewed where 
state-qualified HCTC coverage was provided through arrangements with 
insurers offering individual market plans (Maryland, North Carolina, 
Ohio, and Texas), insurers took each applicant's health status and 
medical history into account when determining premiums, a process known 
as medical underwriting.[Footnote 49] The other two states (New York 
and Pennsylvania) charged the same rates for all enrollees. High-risk 
pools in the states we reviewed generally charged enrollees different 
rates based on their age (Illinois, Maryland, Texas), gender (Illinois, 
Texas), or county of residence (Illinois, Texas). One high-risk pool 
(Texas) also charged tobacco users higher premiums than nontobacco 
users.

Unlike COBRA or other group market coverage, where premiums are based 
on the history of medical costs and demographic characteristics 
associated with a group of individuals who are employees of a company 
or related companies, eligibility and premiums in the individual market 
in many states are based largely on each individual's health status and 
risk characteristics. Typically, the extent to which insurers selling 
coverage in the individual market can raise premiums for older 
individuals or those with existing health conditions is determined by 
each state.[Footnote 50] While the premiums charged by insurers selling 
coverage in the individual market may vary substantially, the premiums 
charged by state high-risk pools are generally set between 125 percent 
and 200 percent of the standard premium that an individual in good 
health would typically pay for coverage in the individual market. 
Regardless of health status, HCTC recipients purchasing COBRA coverage 
would be charged the same rate as the rest of the employee group, while 
those purchasing coverage through a high-risk pool would pay from 125 
percent to 200 percent of the standard premium charged to healthy 
individuals. HCTC recipients purchasing coverage through an arrangement 
with an insurer would likely be charged varying premiums based on their 
health status and other demographic characteristics, with some 
unhealthy, high-risk individuals paying more, and in some cases 
substantially more, than 200 percent of the rates charged to 
individuals in good health. For example, in one state we reviewed, the 
insurer offering qualifying coverage to HCTC recipients charged 
individuals rated in their poorest health category 580 percent of the 
premium charged to those rated in their healthiest category.

For state-qualified HCTC insurers, particularly those in the individual 
market, having to provide guaranteed issue coverage to certain HCTC 
recipients presents additional risk. For example, if an individual 
applicant with 3 months of prior creditable coverage has a costly 
chronic medical condition, such as juvenile-onset diabetes or heart 
disease, which would otherwise typically result in that applicant being 
denied coverage, the cost to the insurer may outweigh the premium paid, 
resulting in a loss to the insurer. To compensate for this additional 
risk posed by the guaranteed issue requirement, federal officials have 
granted permission for state-qualified HCTC health plans to charge 
higher premiums to individuals rated in the poorest health categories-
-individuals who would otherwise be turned down for coverage--as long 
as the additional premiums are actuarially justified and pass state 
insurance department review.

One insurer we interviewed that sold state-qualified coverage in 
multiple states, including one of the states we reviewed, used 
differing practices in setting premiums for HCTC recipients in these 
states. In the state we reviewed, this insurer reported that it had 
originally planned to offer coverage on a guaranteed issue basis to all 
HCTC enrollees, regardless of whether they had 3 months of prior 
creditable coverage, and to automatically charge them 200 percent of 
the standard premium that it would typically charge a healthy 
applicant.[Footnote 51] After the state department of insurance 
rejected this premium-setting practice, the health plan set up a two-
tier pricing system whereby healthier individuals who passed medical 
underwriting were charged the standard premium, while those who did not 
pass underwriting were charged 200 percent of this rate. Although this 
insurer modified its pricing method in the state we reviewed, the 
insurer said that it continued to automatically charge all HCTC 
recipients a higher-than-standard premium in two other states where it 
sold state-qualified coverage. Thus, although the guaranteed issue 
provision ensures that qualified individuals will have access to HCTC 
coverage, regardless of age or health status, it also means that the 
healthiest HCTC recipients may pay more for such coverage than they 
otherwise would in the individual market without guaranteed issue. 
Without this consumer protection, however, HCTC recipients with certain 
preexisting medical conditions would likely be unable to purchase 
coverage from state-qualified health insurers selling individual market 
health plans.

Two states we reviewed (Maryland and Texas) offered state-qualified 
HCTC coverage through both the state high-risk pool and through an 
arrangement with an insurer. Because of the way health plans in these 
states set premiums, less healthy HCTC recipients were likely to find 
the high-risk pool coverage to be the less expensive of the two state-
qualified options, while healthier HCTC recipients were generally able 
to purchase less expensive coverage through the arrangement with an 
insurer. For example:

* In Maryland, the health plan offered through an arrangement with an 
insurer charged less healthy HCTC recipients 200 percent of the 
standard premium typically charged an applicant in good health, whereas 
the state high-risk pool charged all applicants 150 percent of the 
standard rate.

* In Texas, high-risk pool rates were set at 200 percent of the 
standard premium, while the state-qualified HCTC plan offered through 
an arrangement with an insurer charged HCTC recipients rated in the 
poorest health category 4.7 times as much as those rated in the average 
health category and 5.8 times as much as those rated in the healthiest 
category.

Most of the state-qualified plans in the seven states we reviewed that 
had such plans reported that they have not analyzed the extent to which 
HCTC recipients utilize services, which would be one indicator of the 
health status of the population receiving the HCTC. Officials from some 
of these plans stated that they are collecting health service 
utilization data for individuals receiving the HCTC but that they will 
need at least a full year's worth of data before drawing any conclusion 
as to the overall health status of the TAA and PBGC populations. 
However, on the basis of preliminary medical underwriting data that 
were provided by HCTC state-qualified plans in two of the states we 
reviewed, more HCTC recipients have been placed into the healthy or 
standard risk categories than into the poorest health categories 
designated for this population. One health plan indicated that fewer 
than half of its enrollees receiving the HCTC were placed in below-
average rating categories, while the other reported that one-fifth of 
its HCTC enrollees were categorized as worse-than-average risks.

IRS Implemented the HCTC on Time and Is Addressing Some Early 
Implementation Issues:

IRS's HCTC program office met the statutory time frames for 
implementing the HCTC, enabling individuals to claim the end-of-year 
HCTC for December 2002 on their income taxes and making the advance 
HCTC available on August 1, 2003. To meet these time frames, the HCTC 
program office coordinated closely with other federal agencies, state 
agencies, and private health plans and used private contractors 
extensively. These stakeholders generally reported that the 
collaborative effort to implement the HCTC went well and that the HCTC 
program office was responsive to implementation issues that arose. For 
example, these implementation issues included instances where 
individuals who were not eligible for the credit claimed and received 
the end-of-year HCTC for 2002, while others who were eligible and 
claimed it did not receive the payment. IRS has been recovering 
payments made in error and revised its forms and processes to reduce 
these problems for the end-of-year HCTC for 2003. Implementation issues 
for the advance HCTC included the unwillingness of certain health plans 
to accept advance credit payments; delays in health plans' receiving 
correct payments when premiums changed; and inaccurate state 
eligibility lists that jeopardized individuals' receipt of the advance 
HCTC. The HCTC program office reported that, from February 2003, when 
work began to set up the advance HCTC, through April 2004, start-up 
costs for design, development, and implementation of the HCTC were 
about $69 million. After restructuring the HCTC program office to 
transition from implementation activities to operating activities, 
costs for the HCTC were expected to be about $40 million for the year 
starting July 1, 2004, and reflected a reduction in contractor staff, 
although contractors will continue to perform the majority of the 
administrative and operational work.

End-of-Year and Advance HCTC Available on Time:

According to federal officials, in order to implement the HCTC on time, 
IRS's HCTC program office coordinated closely with federal agencies, 
state agencies, and health plans and received extensive support from 
private contractors. Implementation efforts for the end-of-year and 
advance HCTC met the statutory deadlines contained in the TAA Reform 
Act, making each form of the HCTC available for December 2002 and by 
August 2003, respectively.[Footnote 52] While IRS's HCTC program office 
had primary responsibility for implementing the HCTC, officials from 
this and other federal agencies involved in its implementation--HHS, 
Labor, and PBGC--reported that instituting the advance HCTC in 
particular was a cooperative effort that went well. Officials from 
workforce agencies and health plans in the states we reviewed largely 
concurred, stating that the HCTC program office was helpful in 
implementing the HCTC and addressing issues that have arisen. Meeting 
the 1-year implementation time frame for the advance HCTC was 
challenging for state workforce agencies, however. According to our 
survey of state workforce agencies conducted in March 2004, 71 percent 
reported that implementing the advance HCTC had been somewhat or very 
difficult.[Footnote 53] For example, as figure 7 shows, state workforce 
agency officials were less satisfied with the timeliness of the 
information they received from the HCTC program and Labor to implement 
the advance HCTC than they were with the assistance itself.

Figure 7: State Workforce Agencies' Perspectives on Timeliness and 
Adequacy of HCTC Program Office's and Labor's Assistance with 
Implementing the Advance HCTC, March 2004:

[See PDF for image]

Note: Puerto Rico's workforce agency was included in this survey; the 
District of Columbia's workforce agency was not included.

[End of figure]

Ineligible Individuals Received End-of-Year HCTC for 2002, but New 
Procedures to Reduce Errors Were Instituted for 2003 Filing:

HCTC program officials stated that, while individuals were able to 
claim the end-of-year HCTC for premiums paid in December 2002, IRS was 
unprepared to verify these claims and some credits were paid or denied 
in error--that is, some individuals received the HCTC who should not 
have and other individuals who were eligible for it did not. These 
errors were the result of mistakes individuals made on their tax 
returns--partly because of limited information in IRS's tax 
publications and communications for 2002 about how to claim the HCTC--
and errors IRS staff made in processing each claim manually. Claims for 
the end-of-year HCTC in 2002 were still undergoing review as of June 
2004, and the HCTC program reported that of the $2.9 million disbursed, 
about $465,000 had been improperly paid to ineligible individuals. More 
than half of this amount (about $243,000) had been recovered, and IRS 
continues to seek recovery of the rest. HCTC program officials stated 
that for those who do not pay back the credit, future tax refunds would 
be offset by the outstanding amount. Additionally, IRS is in the 
process of auditing 577 claims (about 2 percent of the total) for 2002 
that were for greater amounts than were expected. As of June 8, 2004, 
about half of the audits had been completed, and about 85 percent of 
the HCTC amounts claimed were disallowed.

To reduce the number of ineligible individuals receiving the end-of-
year HCTC for 2003, HCTC program officials instituted new procedures 
and reporting requirements. For example, all tax records were 
prescreened against state workforce agency and PBGC eligibility lists 
to identify who was potentially eligible to receive the end-of-year 
HCTC. As of May 2004, HCTC program officials reported that this 
screening had prevented about 8,000 ineligible individuals from 
improperly claiming the end-of-year HCTC on their 2003 tax returns. 
However, this prescreening only identified whether an individual was 
potentially eligible for the HCTC at any time during the year, not the 
specific month or months in which he or she might have been eligible. 
IRS provided tax professionals with information about the HCTC and 
mailed each individual who was identified as potentially eligible for 
the credit in 2003 information about how to claim the end-of-year HCTC. 
Additionally, the IRS tax form used to claim the end-of-year HCTC was 
revised to include clearer instructions to help filers determine 
whether they were eligible for the credit, and individuals were 
required to attach copies of invoices and payments for each month in 
2003 for which they claimed the end-of-year HCTC. This procedure does 
not, however, ensure that the individual purchased qualified health 
coverage. Therefore, potentially eligible individuals could have 
claimed the end-of-year HCTC in 2003 for more months than they should 
have or for coverage that did not qualify for the credit.

HCTC Program Office Adapted Policies and Procedures to Resolve Some but 
Not All Advance HCTC Implementation Issues:

Advance HCTC payment and implementation issues prompted the HCTC 
program to change some of its procedures, but not all issues have been 
resolved. One such payment issue for which the HCTC program adapted its 
procedures was the refusal of some automatically qualified health plans 
to accept the advance HCTC from IRS. HCTC program officials reported 
that certain health plans refused to accept payments from IRS, 
primarily because they found the process to register to receive advance 
payments burdensome or they did not want to receive electronic 
payments. According to these officials, health plans had to register in 
the primary vendor database for the federal government--the Central 
Contractor Registration (CCR)--and accept electronic payments in order 
to receive advance HCTC payments. The CCR requirement was reported to 
cause delays, and some plans, especially smaller ones, refused to 
accept electronic payments or did not have the necessary systems to 
process them. To encourage health plans to participate, the HCTC 
program office changed its registration process for health plans--it no 
longer requires plans to register with the CCR--and now issues paper 
checks if a health plan will not accept electronic payments. HCTC 
program officials reported that these changes have prompted some plans 
to agree to participate. However, as of June 2004, 211 health plans 
still refused to participate. Most of these were COBRA plans that 
covered few HCTC-eligible individuals. Because these 211 plans refused 
to accept payments, about 447 individuals who had tried to enroll for 
the advance HCTC had to wait until the end of the year to claim the 
HCTC. Officials from two COBRA plans told us why their plans did not 
accept advance payments: an official from one plan stated that too few 
individuals qualify for the HCTC for the plan to consider 
participating, while an official from another plan was concerned that 
the advance HCTC would encourage less healthy individuals to retain 
coverage and that this would result in financial losses for the plan. 
Nevertheless, a total of more than 600 health plans covering more than 
13,000 individuals have agreed to receive the advance HCTC as of June 
2004.

An unresolved payment issue identified by 3 of the 10 state-qualified 
plans we contacted in the states we reviewed was the receipt of 
incorrect advance HCTC payments from IRS when premiums change. While 
officials from most of the state-qualified plans we interviewed (6 of 
10) reported that either they did not experience any problems with 
advance HCTC payments or that any problems they experienced had been 
resolved, the most common unresolved issue, reported by officials from 
three of the plans that identified ongoing issues, dealt with the 
receipt of incorrect payments when premiums changed. This problem was 
attributed largely to the time it takes for HCTC enrollees to notify 
the HCTC program of the new premium and for the HCTC program to adjust 
the allowable premium amount. For example, one plan reported that 
payments from IRS are incorrect--usually less than the required amount-
-for a couple of months after a premium change. To mitigate this 
problem, two officials from state-qualified plans suggested that the 
health plan, rather than the HCTC enrollee, notify the HCTC program of 
premium changes. Officials from two COBRA plan administrators that had 
a large number of advance HCTC enrollees stated that they did report 
premium changes directly to the HCTC program. However, HCTC program 
officials reported that some plans prefer not to report the changes to 
HCTC because it is outside their normal procedures or they have few 
members receiving the advance HCTC.

An implementation issue affecting enrollees, for which the HCTC program 
revised its procedures, concerned how the program office responded to 
enrollees' payments that were less than the requested amount or late. 
According to HCTC program officials, between August 2003 and February 
2004, more than 1,700 individuals who had enrolled for the advance HCTC 
were terminated temporarily from the advance HCTC because their 
payments to IRS were less than their 35 percent share or they were 
late. Approximately 55 percent of the individuals who were terminated 
subsequently reenrolled for the advance HCTC. HCTC program officials 
noted that the initial billing and payment procedures generated 
numerous calls to the customer service center because individuals 
received multiple invoices for their 35 percent premium amount, some of 
which they received late because of mail delivery problems. To mitigate 
this confusion and the burden of reenrolling individuals who had been 
dropped, the HCTC program office changed its billing and payment 
procedures in March 2004. Under the revised procedures, only one 
invoice would be sent each month and, instead of terminating 
individuals whose payments were less than the required amount, the HCTC 
program office would add a 65 percent HCTC proportional to the payment 
they receive and forward this amount to the health plan. The HCTC 
enrollee would be responsible for paying any outstanding difference to 
the health plan directly. HCTC program officials told us that since 
making these changes, no advance HCTC enrollee has been terminated as a 
result of payments that were less than the required amount or late. 
Additionally, officials we interviewed from five of the health plans in 
the states we reviewed reported that they were lenient in applying 
their payment rules to ensure that plan members did not lose coverage 
as a result of problems with the advance HCTC. For example, an official 
from one health plan reported that the plan had extended from 30 to 90 
days the grace period for advance HCTC members to pay their monthly 
premiums.

The HCTC program office has also changed its procedures to address the 
receipt of incomplete lists of potentially eligible individuals from 
state workforce agencies. HCTC program officials reported that the 
lists state workforce agencies provide on which the HCTC program office 
relies to determine eligibility for the advance HCTC were incomplete 
for many states and that verifying that individuals remained eligible 
for the advance HCTC was time consuming. Some states also reported 
problems with transmitting these data to IRS. Ohio, for example, 
reported that the HCTC program office does not always receive all of 
the names of potentially eligible individuals that it sends. HCTC 
program officials reported that from October 2003 through March 2004, 
the lists of TAA recipients potentially eligible to receive the HCTC 
submitted by about one-third to more than one-half of states (16 states 
to 28 states) failed to include the names of all eligible TAA 
recipients. Since October 2003, the HCTC program office has audited 
these states' lists and asked the workforce agencies to confirm that 
their transmissions were correct if any of the individuals enrolled to 
receive the advance HCTC from the previous month failed to reappear as 
eligible. During the first 6 months in which the HCTC program office 
performed these audits, it identified 2,984 individuals who were 
enrolled to receive the advance HCTC in a previous month but whose 
names dropped from the state lists in the current month. The state 
workforce agencies determined that approximately 55 percent (or 1,648) 
of these individuals were still eligible for the advance HCTC and that 
their names should not have been dropped from the list. Thus, without 
this audit process these individuals would have erroneously lost 
eligibility for the advance HCTC. However, HCTC program and Labor 
officials reported that this verification process is a burden on HCTC 
program staff and the states.

HCTC program officials reported that they did not track advance payment 
errors that occurred as a result of mistakes made by IRS. While these 
officials acknowledged that some mistakes did occur, such as late 
payments or accounting errors, they said that the majority of payments 
were timely and accurate and that problems were resolved at the time 
they occurred. Likewise, most officials from health plans we spoke with 
reported few problems with IRS's payments; problems identified included 
payments containing incorrect identification numbers or payments for 
incorrect amounts.

HCTC Program Office Used Contractors to Implement and Perform Most 
Program Functions:

IRS established the HCTC program office with primary responsibility for 
overseeing and coordinating efforts for the HCTC. The HCTC program 
office is responsible for resolving operational and legal issues and 
monitoring the overall progress of the HCTC on a day-to-day basis. An 
executive steering committee, composed of affected federal agencies and 
contractors, also was established to provide guidance to the HCTC 
program office. The majority of officials on the HCTC program's 
executive steering committee are IRS or Treasury officials. High-level 
officials from each of the other federal agencies involved with the 
HCTC--Labor, HHS, and PBGC--as well as the IRS and Treasury officials 
are voting members. Officials from IRS's primary private contractor and 
a subcontractor--Accenture and The Lewin Group, respectively--are 
nonvoting members of the committee.[Footnote 54] This committee meets 
monthly to provide guidance on policy, legal, and programmatic issues.

To meet the implementation date for the advance HCTC, IRS relied on 
contractors. According to HCTC program officials, IRS staff work 
closely with contractor staff and oversee their work on an ongoing 
basis. For example, within the HCTC program office are six project 
teams, each of which is managed by a senior-level IRS staff person. 
Paired with each senior-level IRS staff person is a senior contractor 
staff person, and most of the staff performing specific operational 
tasks for the HCTC are from the contractor. While the senior IRS and 
contractor staff share responsibility for their project team's work, 
the IRS staff person establishes the direction of the work on the basis 
of the HCTC program's strategic plan, sets priorities, and brings 
knowledge about IRS's processes to the team. IRS and contractor staff 
responsibilities are also clarified in the contract documents. For 
example, IRS contract documents state that the government 
responsibilities include defining the rules under which the program 
will function and that the primary contractor's responsibilities 
include designing and administering the HCTC program according to these 
rules. IRS officials in the HCTC program reported that close 
collaboration between government and contractor staff helped them 
implement the advance HCTC in a timely manner.

Officials from IRS's contracting office reported that oversight of the 
primary HCTC contractor responsible for developing and maintaining much 
of the HCTC program office's infrastructure is conducted in several 
ways. IRS contracting officers include direction on how work is to be 
completed in work requests, as well as reporting requirements and 
deliverables. For example, one work request required the contractor to 
report daily on the handling of calls received by the call center for a 
few months in 2003. IRS staff in the specific area where the work is to 
be done review and approve each work request under the contract, 
monitor the contractor's work, and make recommendations to the 
contracting official regarding whether the completed work is 
acceptable. Additionally, IRS contracting officials reported that they 
review monthly status reports, cost documents, and deliverables 
submitted by the primary contractor. However, the HCTC program office 
has not instituted performance measures and is currently working on 
draft measures and preliminary goals for fiscal year 2005.

To implement and administer the advance HCTC, Congress appropriated $70 
million to IRS for fiscal year 2003, which will remain available 
through fiscal year 2004, and $35 million for fiscal year 2004, 
available through fiscal year 2005.[Footnote 55] HCTC program officials 
expected that costs to administer the HCTC program--from the time that 
work by the primary contractor began in February 2003 through June 
2005--would be about $116 million.[Footnote 56] These costs, broken 
down by major activities, included about $33 million for design and 
development work during February 2003 through April 2004. 
Implementation costs to establish the systems that would be used on an 
ongoing basis and costs to administer the advance HCTC for the first 9 
months it was available were reported to be about $36 million for May 
2003 through April 2004. In May and June 2004, the HCTC program office 
engaged in a planning process during which it restructured its 
operations and determined how it would transition from implementation 
activities to operating activities. Costs to reorganize and administer 
the HCTC during this 2-month transition period were expected to be 
about $6 million. After transitioning to operating activity levels, 
officials expected that costs for the HCTC would be about $40 million 
for the year July 2004 through June 2005, and IRS officials reported 
that they are identifying ways to further lower operating costs. 
Included in this $40 million are about $32 million for operating costs 
and about $8 million for program enhancements such as software updates. 
In total, the majority (at least $97 million) of the approximately $116 
million to administer the HCTC--from its early 2003 start-up through 
mid-2005 operations--was expected to be paid to IRS's contractors. (See 
table 8.)

Table 8: Summary of IRS's Incurred and Expected HCTC Administration 
Costs, February 2003 through June 2005:

Dollars in millions: 

Design and development of the HCTC (February 1, 2003, to April 30, 2004); 
IRS: $3.8; 
Primary contractor: $28.7; 
Secondary contractors: $0.8; 
Total: $33.3.

Implementation of the HCTC (May 1, 2003, to April 30, 2004); 
IRS: $2.9; 
Primary contractor: $32.1; 
Secondary contractors: $1.2; 
Total: $36.1.

Transition to operational level of service (May 1, 2004, to June 30, 
2004); 
IRS: $0.4; 
Primary contractor: $5.8; 
Secondary contractors: $0.3; 
Total: $6.5.

Expected operating and enhancement costs (July 1, 2004, to June 30, 
2005); 
IRS: $3.6; 
Primary contractor: $26.3; 
Secondary contractors: $1.9; 
Total: $40.0[A].

Total[B]; 
IRS: $10.6; 
Primary contractor: $92.8; 
Secondary contractors: $4.2; 
Total: $115.9. 

Source: IRS's HCTC program office.

[A] Included in the $40.0 million is $8.2 million for potential program 
enhancement costs. IRS could not estimate how program enhancements 
expenditures would be allocated between IRS and the contractors.

[B] Totals may not add because of rounding and are subject to change 
for IRS and the contractors according to how program enhancement costs 
are allocated.

[End of table]

From start-up through June 2004, IRS's primary contractor was 
responsible for most of the work for the HCTC.[Footnote 57] The 
contractor's responsibilities during this time included assisting in 
the development of eligibility and payment processing policies and 
procedures, maintaining and operating the program office, and 
establishing a call center. While IRS had an average of 9 full-time-
equivalent staff assigned during this time to design, develop, 
implement, and transition the HCTC program to ongoing operational 
service levels, the primary contractor had an average of 243 full-time-
equivalent staff working on these activities.[Footnote 58]

Starting July 1, 2004, HCTC program officials expected that operating 
and enhancement costs for the next 12 months would be about $40 
million. This figure also reflects a decrease in contractor staff. 
These costs reflect a reduction in service levels and IRS's assumption 
of more of the administrative responsibilities for the HCTC. HCTC 
program officials stated that reduced service levels means that, for 
example, the HCTC program will focus on responding to issues raised by 
health plans rather than providing as much individual-level outreach to 
health plans as they had in the past. IRS's primary contractor is 
expected to continue to perform the majority of work for the HCTC, and 
officials reported that there would be a decrease in the amount of work 
done by the contractor, with contractor staffing to decrease to 167 
full-time-equivalents. There would be a slight increase in the amount 
of work done by IRS, with no increase in the number of IRS staff 
positions designated but with hiring done to fill vacant positions to 
reach a total of 17 full-time equivalents.

45 States Received National Emergency Infrastructure Grants; Fewer 
States Received National Emergency Bridge or High-Risk Pool Grants:

As of August 2004, 45 states received national emergency infrastructure 
grants from Labor to help them set up mechanisms to administer the 
HCTC, and 11 states received national emergency bridge grants to help 
pay a portion of the premiums. In total, $45 million, or half of the 
$90 million in available national emergency grant funds, was awarded. 
In response to our survey of state workforce agencies, two-thirds of 
the states that did not apply for the bridge grants said they did not 
have systems in place to implement the grant. A total of 21 states 
received high-risk pool grants from CMS as of August 2004. Sixteen 
states received high-risk pool operating grants to offset losses in 
state high-risk pools, and 6 states were awarded a seed grant for 
establishing a new high-risk pool (1 state received both a seed and an 
operating grant). As of August 2004, less than half of the $80 million 
in funds available for high-risk pool operating grants had been 
awarded, as well as less than one-fifth of available high-risk pool 
seed grants. CMS officials reported that one reason seed grants were 
not more popular is that states were reluctant to take on the ongoing 
financial obligation of a high-risk pool. (App. V lists the states 
awarded national emergency grants and high-risk pool grants and the 
amounts awarded.)

Half of Available National Emergency Grant Funds Have Been Awarded:

As of August 2004, half ($45 million) of the $90 million available for 
national emergency grants had been awarded--about $7 million for 
infrastructure grants and about $38 million for bridge grants. Most 
states received national emergency grants, with 45 states receiving 
infrastructure grants and 11 receiving bridge grants. For fiscal year 
2002, $60 million was appropriated for national emergency grants, 
including $50 million for bridge grants and $10 million for 
infrastructure grants. An additional $30 million was appropriated for 
fiscal year 2003 for both bridge and infrastructure grants.

While bridge grants were originally awarded to provide individuals with 
a 65 percent subsidy prior to the implementation of the advance HCTC in 
August 2003, Labor has expanded the use of bridge grants to cover the 
1-to 3-month gap period during the HCTC enrollment process when 
individuals must pay 100 percent of their premiums out of 
pocket.[Footnote 59] Five states--Maine, Maryland, North Carolina, 
Ohio, and Virginia--are using bridge grant funds to cover this gap 
period, and more states are in the process of seeking funds for this 
purpose. State officials reported that these grants are important to 
help individuals cover premiums during the advance HCTC enrollment 
process and that the availability of these funds during this period 
could increase eligible individuals' interest in and receipt of the 
HCTC.

In March and April 2004, the HCTC program piloted an initiative called 
"HCTC National Emergency Grant Bridge Support Activities" to support 
states that received bridge grant funds. The pilot was tested in 
Maryland and Virginia and involved three activities. First, the HCTC 
program began asking individuals in these states when they applied for 
the credit to consent to the HCTC program sharing certain private 
enrollment information with state officials, such as names, addresses, 
and enrollment status. According to the HCTC program, most individuals 
(80 percent) in these states consented to this at the time of 
enrollment. The HCTC program office then sent a report to states weekly 
showing HCTC enrollment status, contact information, Social Security 
number, and eligibility type for all TAA recipients and PBGC 
beneficiaries who had consented to disclosure of this information. 
Pilot states were encouraged to use this information as a tool for 
outreach and for determining an individual's eligibility for bridge 
grant payments. Second, the HCTC program office offered support to 
states in promoting their bridge grant program to potentially eligible 
individuals. Third, the HCTC program office provided ad hoc support to 
bridge grant states on questions regarding HCTC eligibility and 
enrollment. Virginia reported that it used the consent reports to 
conduct outreach such as mailing application forms to potential 
eligibles, as well as to monitor enrollment status to avoid potential 
overpayments. Maryland used the consent reports to contact prescreened 
PBGC beneficiaries and offered them bridge services, including mailing 
out application packages, and Maryland officials said that the pilot 
experience helped improve federal and state coordination. The HCTC 
program and Labor have agreed to expand the bridge grant pilot to other 
states.

In response to our survey of state workforce agencies in March 2004, 
officials cited a variety of reasons to explain why they did not apply 
for bridge or infrastructure national emergency grants.[Footnote 60] 
For example, officials in two-thirds of the states that did not apply 
for the bridge grants said that they did not have systems in place to 
implement the grant. The rest of the states cited a variety of reasons 
for not applying, including difficulty with the grant application 
process, insufficient TAA workers or activity, no need for the funding, 
and prohibitive administrative costs. One state indicated that it was 
hesitant to assist individuals with obtaining health coverage because 
it was unable to make decisions about health insurance coverage. Of the 
five states that Labor reported had not received infrastructure grants, 
two said that they did not require funding from the grant and another 
said that it had to complete some system changes before applying for a 
grant. One state said it would be applying for the grant in the future, 
and another was not sure whether an application had been submitted. 
(See table 9.)

Table 9: Reasons States Did Not Apply for National Emergency Grants:

Reason: Did not have systems in place; 
Bridge grant: 24; 
Infrastructure grant: [A].

Reason: Did not have enough TAA workers; 
Bridge grant: 6; 
Infrastructure grant: 0.

Reason: Application process was too difficult; 
Bridge grant: 5; 
Infrastructure grant: 0.

Reason: Did not require funding from the grant; 
Bridge grant: 4; 
Infrastructure grant: 2.

Reason: Other reasons; 
Bridge grant: 6; 
Infrastructure grant: 2.

Total; 
Bridge grant: 35 states[B]; 
Infrastructure grant: 5 states[C].

Source: GAO survey of state workforce agencies.

Note: Puerto Rico's workforce agency was included in this survey; the 
District of Columbia's workforce agency was not included.

[A] Not applicable. This was not a response option for the survey 
question.

[B] Some states cited multiple reasons for not applying for bridge 
grants.

[C] One state was uncertain of the status of its grant at the time we 
conducted our survey.

[End of table]

Twenty-one States Received Grants to Start or Operate High-Risk Pools:

Almost half of the states (21 states) received high-risk pool grants as 
of August 2004. Six states were awarded seed grants of between about 
$53,000 and $1 million for establishing a high-risk pool and 16 states 
received operating grants to offset losses incurred by their high-risk 
pools.[Footnote 61] As of August 2004, $4 million of the $20 million 
available for seed grants had been awarded to establish new high-risk 
pools, and less than half (about $30 million) of the $80 million 
available for high-risk pool operating grants had been awarded. CMS was 
reviewing an application from the District of Columbia, as of August 
2004, and Vermont's application will be withdrawn because legislation 
to create a high-risk pool in Vermont was not enacted by its state 
legislature. (See app. V for a list of high-risk pool awards to 
states.)

According to a CMS official, one reason more states did not apply for 
high-risk pool seed grants was that states' fiscal concerns made them 
reluctant to take on the ongoing financial obligations of a new high-
risk pool, which typically enrolls individuals with a history of high 
medical costs, incurs costs potentially higher than the premiums 
received from enrollees, and requires subsidization from taxes on local 
insurers or other revenue sources. CMS officials also said that several 
states that had high-risk pools were not eligible for the high-risk 
pool operating grant because they did not meet the eligibility 
criteria. The operating grant is available only to qualified high-risk 
pools that meet certain eligibility criteria, and the award amounts are 
based on the number of uninsured individuals in each state. In addition 
to meeting the criteria for a qualified high-risk pool contained in the 
Public Health Services Act,[Footnote 62] eligibility criteria for 
receipt of the grant included restrictions on the premiums charged, the 
number of plan choices available to enrollees, and the availability of 
mechanisms to fund ongoing losses incurred by the pool. California and 
Texas, where the numbers of uninsured people are among the highest in 
the nation and therefore would have been eligible for proportionately 
larger shares of the grant funds, were among the states that did not 
meet these criteria. California did not qualify because its high-risk 
pool did not meet the qualified high-risk pool requirement that 
eligible individuals have immediate access to the pool, and Texas did 
not qualify because the premiums for its high-risk pool were set above 
the allowable limits. Three other states--New Jersey, Idaho, and 
Oregon--that applied for an operating grant were turned down because 
their arrangements did not meet the definition of a qualified high-risk 
pool.

Conclusions:

The Trade Adjustment Assistance Reform Act of 2002 established the HCTC 
to help trade-displaced workers and retirees whose pension plans have 
been assumed by PBGC to purchase health coverage. The establishment of 
the HCTC within 1 year of enactment, including development of a new 
mechanism for paying the HCTC directly to hundreds of health plans on 
behalf of enrollees in advance of the premium due date, resulted from 
the collaborative efforts of multiple federal and state agencies and 
private health plans. As implementation issues arose--such as certain 
health plans' reluctance to participate, some initial payment problems, 
and ineligible individuals receiving the end-of-year credit in 2002--
the IRS-based HCTC program office worked with other federal, state, and 
private stakeholders and adapted its policies and processes to address 
these and other issues.

Despite these efforts, the number of individuals receiving the HCTC to 
date continues to be a smaller portion of those potentially eligible 
than many stakeholders had expected and some implementation issues 
remain unresolved. A major factor cited by many state and health plan 
officials as a reason for lower than expected enrollment was the 
affordability of coverage, as some eligible individuals may find it 
difficult to pay the entire premium for 3 to 6 months to maintain 
coverage until they receive the advance HCTC, and even the 35 percent 
share of premiums, once the HCTC covers remaining premium costs can 
represent a high proportion of income, particularly for displaced 
workers or retirees. Further, while the advance payment option was 
intended to make the HCTC attractive for eligible individuals by 
minimizing their out-of-pocket payments, most HCTC recipients in 2003 
did not use this option. Instead, the majority of recipients opted to 
receive the HCTC by claiming the credit on their year-end tax forms. 
State, health plan, and union officials told us that the complexity of 
the eligibility determination and enrollment process contributed to the 
lower than expected usage of the advance payment option. For example,

* The multitude of tax, labor, and health coverage requirements related 
to the HCTC are challenging for workers and retirees to navigate. 
Potentially eligible individuals must often contact multiple federal, 
state, and private entities to obtain the information they need to 
enroll. While the HCTC program office offers information to potentially 
eligible individuals through its call center, this resource begins 
after individuals have been identified by states or PBGC as potentially 
eligible and often after individuals have already made decisions about 
maintaining, changing, or dropping health coverage.

* Individuals who have more than a 63-day break in continuous health 
coverage may lose federal consumer protections guaranteed in the TAA 
Reform Act, such as guaranteed acceptance by a health plan and coverage 
for their preexisting medical conditions. Given that it takes 3 to 6 
months to become eligible for and receive the advance HCTC, during 
which time the individual is responsible for the full premium amount, 
some individuals may lose these consumer protections if they do not 
maintain coverage during this time.

* To receive the HCTC, the TAA Reform Act requires that an individual 
must meet certain trade readjustment allowance eligibility 
requirements, including (1) waiting 60 days or more from the time that 
a petition to certify that workers were displaced due to trade is 
submitted to Labor, and (2) complying with the requirement to obtain 
reemployment training or obtain a waiver from training each month. 
State workforce agencies contend that granting these waivers to 
facilitate eligibility for the HCTC is an added administrative burden 
that further complicates enrollment in the HCTC.

* Lists from state workforce agencies used to verify individuals' 
eligibility were sometimes incomplete, causing individuals to lose 
access to the advance HCTC if their names were erroneously dropped. 
Although the HCTC program office began auditing the lists to ensure 
that they contained all eligible individuals, this time-consuming 
process had not led to the correction of the underlying problem with 
the accuracy of the state lists.

* Enrollees may face delays in having the correct amount of their 
advance HCTC payment adjusted and paid promptly to their health plans 
if they fail to notify the HCTC program office when the health plan 
changes their premiums.

* PBGC beneficiaries who enroll in Medicare lose eligibility for the 
HCTC for themselves and their spouse and other dependents, even though 
their spouse or dependent may not yet be eligible for Medicare and may 
not have access to other sources of coverage. State and union officials 
often noted that this was a concern of PBGC beneficiaries when 
discussing potential eligibility for the HCTC.

As the HCTC program begins its second full year and transitions from 
design and early implementation to more routine operations, it is 
reducing its contractor staffing and some service levels. As the 
program evolves, a less complex enrollment process and shorter time 
period before enrollees begin receiving advance payments could enhance 
the attractiveness of the HCTC and the advance payment option for 
eligible individuals.

Matters for Congressional Consideration:

We suggest that Congress consider taking the following three actions:

* 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.

* 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.

* 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.

Recommendations for Executive Action:

We recommend that the Secretary of Labor, Commissioner of Internal 
Revenue, Administrator of CMS, and Executive Director of the PBGC take 
the following five actions.

* 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.

* 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.

* 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.

* 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.

* 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 and State Comments and Our Evaluation:

We provided a draft of this report to Labor, IRS, CMS, and PBGC and 
officials in the eight states we reviewed, including each state's 
workforce agency and the department of insurance or high-risk pool in 
seven states. We received comments from all four federal agencies, five 
states' workforce agencies (California, Maryland, New York, Ohio, and 
Pennsylvania), five states' departments of insurance (California, New 
York, Ohio, Pennsylvania, and Texas), and two states' high-risk pools 
(Illinois and Maryland).[Footnote 63] The four federal agencies either 
concurred with our recommendations or deferred to IRS as the lead 
agency in implementing the HCTC. The state agencies that commented on 
our draft generally concurred with our findings. Comments from the 
federal agencies are reprinted in appendixes VI through IX.

Regarding our recommendation that Labor, IRS, CMS, and PBGC work 
together to develop a centralized resource to help individuals 
understand the eligibility requirements for the HCTC, IRS agreed with 
our recommendation and highlighted efforts it has made to date to 
provide a centralized resource, including developing informational 
documents for individuals and states, making information available on 
its Web site, and establishing a call center. Labor agreed on the 
importance of providing individuals with information about the HCTC and 
highlighted certain actions it had taken to provide information and 
training to state workforce agencies and other interested parties such 
as businesses and unions. Labor also suggested reviewing and evaluating 
the quality of the existing information before taking further actions. 
PBGC commented that it would coordinate with the other agencies to 
address this recommendation, and CMS deferred to IRS as the lead in 
HCTC outreach and education. While we recognize that agencies have made 
efforts to provide individuals with information about the HCTC, we 
noted in the draft report that individualized assistance is not 
available until after individuals may have already made decisions that 
affect their eligibility for the HCTC. Thus, while a review of existing 
resources may be helpful, we have added to our recommendation the need 
for a centralized resource that provides individualized information and 
assistance earlier than it is currently available.

Regarding our recommendation for IRS to evaluate whether any reduced 
service levels will affect individuals' and health plans' satisfaction, 
IRS stated that the agency cannot at this time systematically measure 
customer satisfaction. In response to our recommendation, however, IRS 
stated that it would include questions in future surveys or other 
research to elicit an indication of changes in satisfaction.

In response to our recommendation that IRS and Labor improve the 
quality of eligibility information provided by the states, IRS agreed 
that the information provided by states continues to present a 
challenge. IRS noted that, although it does not have authority over 
states to implement solutions to problems with the eligibility lists, 
it will work with Labor to develop a plan for improving the accuracy of 
these data. Labor agreed with our recommendation and highlighted the 
burden the audits placed on states and agreed to continue to work with 
IRS to improve the quality of the data.

In response to our recommendation that IRS encourage health plans to 
provide notifications of premium changes directly to the HCTC program 
office, IRS agreed to develop an action plan to make this change. IRS 
noted that it would likely phase in this change because of the number 
of plans and individuals affected.

IRS and PBGC agreed with our recommendation that PBGC work with IRS to 
report to Congress the number of PBGC beneficiaries who turn 65 and 
lose eligibility for the HCTC even though their spouse or dependent may 
still need HCTC coverage. Additionally, PBGC suggested that IRS, as the 
lead agency for the HCTC, submit the recommended information to 
Congress. IRS noted that some estimates may be necessary because not 
all data elements are readily available to IRS or PBGC.

In addition to its comments on our recommendations, IRS stated that the 
HCTC presented significant new responsibilities for IRS and that 
challenges remain. IRS reported it is continuing to identify ways to 
improve the operation of the HCTC program, decrease administrative 
costs, and obtain data about those who receive the HCTC in order to 
make outreach activities more effective. IRS stated that it is working 
to shorten the period of time required before an individual receives 
the advance HCTC. It noted, however, that the first 3 months of the 3-
to 6-month period we identified for this process relates to TAA 
certification requirements, and that amending these requirements may 
have broader implications than just for the HCTC program. Additionally, 
regarding our statement that the benefits offered by qualified health 
plans across states differ widely, IRS noted that the coverage 
available for the HCTC is dependent on decisions made by the states and 
the plans that volunteer to participate. IRS stated that it hopes to 
obtain data that will enable a better understanding of the health 
status and other characteristics of HCTC enrollees to help alleviate 
health plans' uncertainty about health care costs of HCTC individuals 
compared to others and to encourage more health plans to participate in 
the advance HCTC program.

IRS and Labor and officials from Maryland, New York, Ohio, 
Pennsylvania, and Texas also provided technical comments, which we 
incorporated as appropriate.

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its date. We will then send copies to the Secretary of Labor, 
Secretary of the Treasury, Administrator of CMS, Commissioner of 
Internal Revenue, Executive Director of PBGC, appropriate congressional 
committees, and other interested parties. We will also make copies 
available to others upon request. In addition, this report will be 
available at no charge on GAO's Web site at http://www.gao.gov.

Please call me at (202) 512-7118 if you have additional questions. 
Another contact and key contributors are listed in appendix X.

Signed by: 

Kathryn G. Allen: 
Director, Health Care--Medicaid and Private Health Insurance Issues:

[End of section]

Appendix I: Advance Health Coverage Tax Credit Enrollees, by State, 
July 2004:

State: Alabama; 
Potentially eligible population[A]: 4,594; 
Enrolled[B]: 142[C].

State: Alaska; 
Potentially eligible population[A]: 86; 
Enrolled[B]: 0.

State: Arizona; 
Potentially eligible population[A]: 1,865; 
Enrolled[B]: 45[C].

State: Arkansas; 
Potentially eligible population[A]: 1,604; 
Enrolled[B]: 39[C].

State: California; 
Potentially eligible population[A]: 7,574; 
Enrolled[B]: 259.

State: Colorado; 
Potentially eligible population[A]: 1,608; 
Enrolled[B]: 56[C].

State: Connecticut; 
Potentially eligible population[A]: 2,281; 
Enrolled[B]: 83[C].

State: Delaware; 
Potentially eligible population[A]: 402; 
Enrolled[B]: 20.

State: District of Columbia; 
Potentially eligible population[A]: 86; 
Enrolled[B]: 0.

State: Florida; 
Potentially eligible population[A]: 11,565; 
Enrolled[B]: 473.

State: Georgia; 
Potentially eligible population[A]: 8,907; 
Enrolled[B]: 93[C].

State: Hawaii; 
Potentially eligible population[A]: 552; 
Enrolled[B]: [C].

State: Idaho; 
Potentially eligible population[A]: 1,291; 
Enrolled[B]: 55[C].

State: Illinois; 
Potentially eligible population[A]: 12,149; 
Enrolled[B]: 478[C].

State: Indiana; 
Potentially eligible population[A]: 10,139; 
Enrolled[B]: 841.

State: Iowa; 
Potentially eligible population[A]: 1,747; 
Enrolled[B]: 39[C].

State: Kansas; 
Potentially eligible population[A]: 1,260; 
Enrolled[B]: 37[C].

State: Kentucky; 
Potentially eligible population[A]: 4,309; 
Enrolled[B]: 228[C].

State: Louisiana; 
Potentially eligible population[A]: 1,036; 
Enrolled[B]: 14[C].

State: Maine; 
Potentially eligible population[A]: 1,970; 
Enrolled[B]: 131[C].

State: Maryland; 
Potentially eligible population[A]: 5,269; 
Enrolled[B]: 577.

State: Massachusetts; 
Potentially eligible population[A]: 4,662; 
Enrolled[B]: 44[C].

State: Michigan; 
Potentially eligible population[A]: 8,733; 
Enrolled[B]: 651.

State: Minnesota; 
Potentially eligible population[A]: 2,778; 
Enrolled[B]: 252.

State: Mississippi; 
Potentially eligible population[A]: 1,786; 
Enrolled[B]: 42.

State: Missouri; 
Potentially eligible population[A]: 6,537; 
Enrolled[B]: 161[C].

State: Montana; 
Potentially eligible population[A]: 230; 
Enrolled[B]: 20[C].

State: Nebraska; 
Potentially eligible population[A]: 452; 
Enrolled[B]: 17.

State: Nevada; 
Potentially eligible population[A]: 755; 
Enrolled[B]: 17.

State: New Hampshire; 
Potentially eligible population[A]: 1,274; 
Enrolled[B]: 24[C].

State: New Jersey; 
Potentially eligible population[A]: 5,619; 
Enrolled[B]: 102[C].

State: New Mexico; 
Potentially eligible population[A]: 430; 
Enrolled[B]: [C].

State: New York; 
Potentially eligible population[A]: 10,317; 
Enrolled[B]: 399.

State: North Carolina; 
Potentially eligible population[A]: 17,875; 
Enrolled[B]: 1,636[C].

State: North Dakota; 
Potentially eligible population[A]: 80; 
Enrolled[B]: 0[C].

State: Ohio; 
Potentially eligible population[A]: 15,285; 
Enrolled[B]: 1,090.

State: Oklahoma; 
Potentially eligible population[A]: 2,617; 
Enrolled[B]: 42.

State: Oregon; 
Potentially eligible population[A]: 1,555; 
Enrolled[B]: 66.

State: Pennsylvania; 
Potentially eligible population[A]: 22,101; 
Enrolled[B]: 2,265.

State: Puerto Rico; 
Potentially eligible population[A]: 988[C]; 
Enrolled[B]: 0.

State: Rhode Island; 
Potentially eligible population[A]: 588; 
Enrolled[B]: 23[C].

State: South Carolina; 
Potentially eligible population[A]: 4,934; 
Enrolled[B]: 136[C].

State: South Dakota; 
Potentially eligible population[A]: 166; 
Enrolled[B]: 0[C].

State: Tennessee; 
Potentially eligible population[A]: 7,629; 
Enrolled[B]: 259[C].

State: Texas; 
Potentially eligible population[A]: 8,719; 
Enrolled[B]: 131[C].

State: Utah; 
Potentially eligible population[A]: 998; 
Enrolled[B]: 57.

State: Vermont; 
Potentially eligible population[A]: 551; 
Enrolled[B]: 16.

State: Virginia; 
Potentially eligible population[A]: 6,541; 
Enrolled[B]: 505.

State: Washington; 
Potentially eligible population[A]: 4,737; 
Enrolled[B]: 274[C].

State: West Virginia; 
Potentially eligible population[A]: 4,203; 
Enrolled[B]: 947[C].

State: Wisconsin; 
Potentially eligible population[A]: 5,523; 
Enrolled[B]: 286[C].

State: Wyoming; 
Potentially eligible population[A]: 77[C]; 
Enrolled[B]: 0.

Total[D]; 
Potentially eligible population[A]: 229,044; 
Enrolled[B]: 13,194.

Source: IRS's HCTC program office.

Notes: Comparable numbers for those receiving the end-of-year HCTC 
were not available.

Data for Puerto Rico are also included in this table.

[A] Not all of the individuals that PBGC and state workforce agencies 
reported as potentially eligible will meet all eligibility criteria
for HCTC.

[B] The enrollment total for each state is the sum of individuals 
enrolled in a state-qualified plan, COBRA, and individual market plans.

[C] Total number of eligible or enrolled individuals is incomplete 
because IRS does not report data categories where the number of 
individuals is from 1 to 9, citing its disclosure and privacy rules. 
For this reason, the sum of enrollment for all states listed does not 
equal the total.

[D] Totals include values not reported in state totals cited above.

[End of table]

[End of section]

Appendix II: State-Qualified Coverage Options:

As of July 2004, 36 states had designated state-qualified coverage 
options that could be purchased by individuals receiving either the 
advance or end-of-year health coverage tax credit (HCTC). Another 3 
states--Arizona, Idaho, and Washington--had designated state-qualified 
plans, but these plans were not yet open to enrollment as of July 2004.
Most of the 36 states that made state-qualified coverage available 
chose to provide this coverage through arrangements with insurers or 
through state high risk-pools, and 3 states designated both their 
high- risk pool and an arrangement with an insurer as state-qualified 
coverage. Thirteen states designated mini-COBRA coverage--state-based 
continuation coverage pertaining to insurers providing coverage to 
plans maintained by employers with fewer than 20 employees. Mini-COBRA 
coverage was the sole state-qualified coverage option available to 
HCTC recipients in 4 states (see table 10). According to federal 
officials, only a small percentage of Trade Adjustment Assistance 
(TAA) recipients and Pension Benefit Guaranty Corporation (PBGC) 
beneficiaries eligible to receive the HCTC likely had access to mini-
COBRA coverage, as few of these individuals formerly worked for an 
employer with fewer than 20 employees.

Table 10: Types of State-Qualified HCTC Plans Available, by State, 
July 2004:

State: Alabama; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Alaska; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Arkansas; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Colorado; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: Yes.

State: Connecticut; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: Yes.

State: District of Columbia; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Florida; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: Yes.

State: Illinois; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Indiana; 
High-risk pool: Yes; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Iowa; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Kansas; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Kentucky; 
High-risk pool: No; 
Arrangement with one or more insurer: No; 
Mini-COBRA: Yes.

State: Maine; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Maryland; 
High-risk pool: Yes; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Michigan; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Minnesota; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Missouri; 
High-risk pool: No; 
Arrangement with one or more insurer: No; 
Mini-COBRA: Yes.

State: Montana; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Nebraska; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: Yes.

State: New Hampshire; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: New Jersey; 
High-risk pool: No; 
Arrangement with one or more insurer: No; 
Mini-COBRA: Yes.

State: New York; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: Yes.

State: North Carolina; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: North Dakota; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Ohio; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: Yes.

State: Oklahoma; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Pennsylvania; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Rhode Island; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: Yes.

State: South Carolina; 
High-risk pool: Yes; 
Arrangement with one or more insurer: No; 
Mini-COBRA: No.

State: Tennessee; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Texas; 
High-risk pool: Yes; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Utah; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: Yes.

State: Vermont; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: Yes.

State: Virginia; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

State: Wisconsin; 
High-risk pool: No; 
Arrangement with one or more insurer: No; 
Mini-COBRA: Yes.

State: West Virginia; 
High-risk pool: No; 
Arrangement with one or more insurer: Yes; 
Mini-COBRA: No.

Total; 
High-risk pool: 17; 
Arrangement with one or more insurer: 18; 
Mini-COBRA: 13.

Source: IRS's HCTC program office.

Note: According to IRS's HCTC program office, Arizona, Idaho, and 
Washington had begun the process of electing state-qualified coverage, 
but the plans in these states were not yet open to HCTC recipients as 
of July 2004.

[End of table]

[End of section]

Appendix III: Variation in Benefits Across State-Qualified Health Plans 
in Seven States:

The benefits offered to HCTC recipients varied across coverage types 
and from plan to plan. COBRA benefits, which were typically identical 
to the benefits provided to working individuals covered by the 
employer's group market health plan, generally included lower 
deductibles than high-risk pools and more comprehensive benefits and 
lower deductibles than state-qualified arrangements with insurers in 
the seven states we reviewed that had state-qualified plans.[Footnote 
64]

The majority of state-qualified plans in the states we reviewed were 
preferred provider organization (PPO) plans, although health 
maintenance organization (HMO), exclusive provider organizations 
(EPO), unrestricted fee for service (FFS), and point of service (POS) 
plans were available in some states.[Footnote 65] According to a 
national employer benefits survey, PPO health plans offered by 
employers in 2003 generally included an average annual deductible for 
services provided within the health plan's preferred provider network 
of $275.[Footnote 66] Table 11 shows that most of the state-qualified 
health plans in the states we reviewed offered a choice among 
deductible amounts, ranging from $0 to $5,000, and that HCTC recipients 
generally selected the lowest deductibles available, typically $1,000 
or less.

Table 11: Annual Deductibles across Selected State-Qualified Health 
Plans in Seven States:

State-qualified HCTC plan: High-risk pools: Illinois--PPO; 
Annual deductible[A]: Deductible options offered: $500, $1,000, $1,500,
$2,500, and $5,000; 
Annual deductible[A]: Deductible most commonly selected by HCTC 
recipients: $500.

State-qualified HCTC plan: High-risk pools: Maryland--PPO option; 
Annual deductible[A]: Deductible options offered: $1,000; 
Annual deductible[A]: Deductible most commonly selected by HCTC 
recipients: [B].

State-qualified HCTC plan: High-risk pools: Maryland--EPO option; 
Annual deductible[A]: Deductible options offered: [C]; 
Annual deductible[A]: Deductible most commonly selected by HCTC 
recipients: [C].

State-qualified HCTC plan: High-risk pools: Texas--PPO; 
Annual deductible[A]: Deductible options offered: $500, $1,000, $2,500, 
and $5,000; 
Annual deductible[A]: Deductible most commonly selected by HCTC 
recipients: $2,500.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Maryland--FFS; 
Annual deductible[A]: Deductible options offered: $800; 
Annual deductible[A]: Deductible most commonly selected by HCTC 
recipients: [B].

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
New York--HMO, Healthy NY; 
Annual deductible[A]: Deductible options offered: [C]; 
Annual deductible[A]: Deductible most commonly selected by HCTC 
recipients: [C].

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
New York--HMO, Healthy NY Plus[E]; 
Annual deductible[A]: Deductible options offered: [C]; 
Annual deductible[A]: Deductible most commonly selected by HCTC 
recipients: [C].

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 

New York--HMO or POS; 
Annual deductible[A]: Deductible options offered: [C]; 
Annual deductible[A]: Deductible most commonly selected by 
HCTC recipients: [C].

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
North Carolina--PPO[F]; 
Annual deductible[A]: Deductible options offered: $250, $500, 
$1,000, and $2,500; 
Annual deductible[A]: Deductible most commonly selected by 
HCTC recipients: $250.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Ohio--PPO; 
Annual deductible[A]: Deductible options offered: $500, $1,000, 
$2,500, and $5,000; 
Annual deductible[A]: Deductible most commonly selected by 
HCTC recipients: $500.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Pennsylvania--FFS (central region); 
Annual deductible[A]: Deductible options offered: $750 and $1,500; 
Annual deductible[A]: Deductible most commonly selected by 
HCTC recipients: $750.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Pennsylvania--FFS (western region)[F]; 
Annual deductible[A]: Deductible options offered: $750; 
Annual deductible[A]: Deductible most commonly selected by 
HCTC recipients: [B].

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Texas--PPO; 
Annual deductible[A]: Deductible options offered: $500, $1,000, 
$1,500, $2,500, and $5,000; 
Annual deductible[A]: Deductible most commonly selected by 
HCTC recipients: $1,000.

Sources: GAO interviews with health plan officials and reviews of 
health plan Web sites, brochures, and benefit summaries.

Notes: Mini-COBRA plans were also designated as state-qualified plans 
by New York and Ohio; however, information on the benefits offered by 
these plans was not readily available and is not included in the table. 
Federal officials estimated that few individuals eligible to receive 
the HCTC had access to mini-COBRA coverage.

The eighth state we reviewed, California, did not designate any state- 
qualified coverage for HCTC recipients.

[A] Deductible options are for one-person coverage and apply to 
services received within the health plan's network, if applicable.

[B] This state-qualified plan or plan option did not offer a choice in 
deductible amounts.

[C] This state-qualified plan or plan option did not have an annual 
deductible.

[D] Some states provided state-qualified HCTC coverage through 
arrangements with more than one insurer. In these instances, we 
selected the insurer with the highest HCTC enrollment. New York was 
unable to provide HCTC enrollment data for each of its state-qualified 
HCTC coverage options, so we were unable to determine which insurer 
had the highest number of HCTC enrollees: we reviewed plans offered by 
an insurer that served areas in which companies had closed and HCTC-
 eligible individuals would likely have resided. The insurer with the 
largest HCTC enrollment in Pennsylvania sold coverage in both the 
central and western regions of the state, and this coverage varied 
between regions.

[E] Healthy NY Plus is an unsubsidized state-based health insurance 
plan available to HCTC recipients who do not meet the income criteria 
for the subsidized Healthy NY plan.

[F] More than one benefits package was offered by the insurer. We 
selected the benefits package most commonly purchased by HCTC 
recipients.

[End of table]

We reviewed these state-qualified health plans for the extent of the 
benefits they offered with regard to maternity care, mental health 
care, and prescription drugs. The extent to which maternity benefits 
were covered by state-qualified plans in the states we reviewed is 
shown in table 12. Employer-sponsored plans typically provided 
coverage for maternity benefits because the federal Pregnancy 
Discrimination Act required employers with 15 or more employees to 
cover expenses for maternity services on the same basis as coverage 
for other medical conditions.[Footnote 67] Only one state-qualified 
plan in the states we reviewed did not provide coverage for maternity 
benefits, and three state-qualified health plans offered maternity 
coverage that was available as an optional benefit with an additional 
premium charge.

Table 12: Maternity Benefits across State-Qualified Health Plans in 
Seven States:

State-qualified HCTC plan: High-risk pools: Illinois--PPO; 
Maternity benefits: Optional[A].

State-qualified HCTC plan: High-risk pools: Maryland--PPO option; 
Maternity benefits: Covered.

State-qualified HCTC plan: High-risk pools: Maryland--EPO option; 
Maternity benefits: Covered.

State-qualified HCTC plan: High-risk pools: Texas--PPO; 
Maternity benefits: Covered.

State-qualified HCTC plan: Arrangements with one or more insurers[B]: 
Maryland--FFS; 
Maternity benefits: Covered.

State-qualified HCTC plan: Arrangements with one or more insurers[B]: 
New York--HMO, Healthy NY; 
Maternity benefits: Covered.

State-qualified HCTC plan: Arrangements with one or more insurers[B]: 
New York--HMO Healthy NY Plus[C]; 
Maternity benefits: Covered.

State-qualified HCTC plan: Arrangements with one or more insurers[B]: 
New York--HMO or POS; 
Maternity benefits: Covered.

State-qualified HCTC plan: Arrangements with one or more insurers[B]: 
North Carolina--PPO[D]; 
Maternity benefits: Optional[A].

State-qualified HCTC plan: Arrangements with one or more insurers[B]: 
Ohio--PPO; 
Maternity benefits: Optional[A].

State-qualified HCTC plan: Arrangements with one or more insurers[B]: 
Pennsylvania--FFS (central region); 
Maternity benefits: Covered.

State-qualified HCTC plan: Arrangements with one or more insurers[B]: 
Pennsylvania--FFS (western region)[D]; 
Maternity benefits: Covered.

State-qualified HCTC plan: Arrangements with one or more insurers[B]: 
Texas--PPO; 
Maternity benefits: Not covered[E].

Sources: GAO interviews with health plan officials and reviews of 
health plan Web sites, brochures, and benefit summaries.

Notes: Mini-COBRA plans were also designated as state-qualified plans 
by New York and Ohio; however, information on the benefits offered by 
these plans was not readily available and is not included in the table. 
Federal officials estimated that few individuals eligible to receive 
the HCTC had access to mini-COBRA coverage.

The eighth state we reviewed, California, did not designate any state- 
qualified coverage for HCTC recipients.

[A] The benefit is offered as an option available for an additional 
monthly premium charge.

[B] Some states provided state-qualified HCTC coverage through 
arrangements with more than one insurer. In these instances, we 
selected the insurer with the highest HCTC enrollment. New York was 
unable to provide HCTC enrollment data for each of its state-qualified 
HCTC coverage options: we reviewed plans offered by an insurer that
served areas in which companies had closed and HCTC-eligible 
individuals would likely have resided. The insurer with the largest 
HCTC enrollment in Pennsylvania sold coverage in both the central and 
western regions of the state, and this coverage varied between the 
regions.

[C] Healthy NY Plus is an unsubsidized state-based health insurance 
plan available to HCTC recipients who do not meet the income criteria 
for the subsidized Healthy NY plan.

[D] More than one benefits package was offered by the insurer. We 
selected the benefits package most commonly purchased by HCTC 
recipients.

[E] Benefits for maternity care were not available under this plan 
except for treatment of pregnancy-related complications.

[End of table]

The mental health benefits offered by state-qualified health plans in 
the states we reviewed are summarized in table 13. A national survey 
of health benefits offered by employers in 2003 reported that 99 
percent of employer PPO plans provided coverage for both inpatient and 
outpatient mental health services, and the majority of these plans 
provided coverage for at least 21 days of inpatient care and 21 
outpatient visits per year.[Footnote 68] In comparison, two state-
qualified health plans in a state we reviewed did not provide any 
coverage for mental health benefits, and one health plan in another 
state we reviewed limited coverage of mental health benefits to 10 
inpatient days and 10 outpatient visits per year. State-qualified 
plans in three states required enrollees to pay 50 percent of the cost 
of outpatient mental health visits. Two state-qualified health plans 
in one state limited coverage to certain mental disorders.

Table 13: Mental Health Benefits across State-Qualified Health Plans 
in Seven States:

State-qualified HCTC plan: High-risk pools: Illinois--PPO; 
Mental health benefits[A]: Inpatient care: Maximum 45 days per year[B] 
20% coinsurance; 
Mental health benefits[A]: Outpatient care: Maximum 50 visits per 
year[B] 20% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): None.

State-qualified HCTC plan: High-risk pools: Maryland--PPO option; 
Mental health benefits[A]: Inpatient care: Maximum 60 days per year[B] 
30% coinsurance; 
Mental health benefits[A]: Outpatient care: Maximum 30 visits per 
year[B] 30% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): None.

State-qualified HCTC plan: High-risk pools: Maryland--EPO option; 
Mental health benefits[A]: Inpatient care: Maximum 60 days per year 
$250 copayment; 
Mental health benefits[A]: Outpatient care: Maximum 30 visits per year 
30% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): None.

State-qualified HCTC plan: High-risk pools: Texas--PPO; 
Mental health benefits[A]: Inpatient care: Serious mental illness 
only[C] Maximum 45 days per year 20% coinsurance; 
Mental health benefits[A]: Outpatient care: Serious mental illness 
only[C] Maximum 60 visits per year 20% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): None.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Maryland--FFS; 
Mental health benefits[A]: Inpatient care: 25% coinsurance; 
Mental health benefits[A]: Outpatient care: 20% coinsurance for visits 
1-5[B] 35% coinsurance for visits 6- 30b 50% coinsurance for 31+ 
visits[B]; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): None.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
New York--HMO, Healthy NY; 
Mental health benefits[A]: Inpatient care: Not covered; 
Mental health benefits[A]: Outpatient care: Not covered; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): Not applicable.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
New York--HMO, Healthy NY Plus[E]; 
Mental health benefits[A]: Inpatient care: Not covered; 
Mental health benefits[A]: Outpatient care: Not covered; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): Not applicable.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
New York--HMO or POS; 
Mental health benefits[A]: Inpatient care: Maximum 30 days per year[B] 
10% coinsurance; 
Mental health benefits[A]: Outpatient care: Maximum 33 visits per year 
10% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): None.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
North Carolina--PPO[F]; 
Mental health benefits[A]: Inpatient care: 50% coinsurance; 
Mental health benefits[A]: Outpatient care: 50% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): $2,000 annual benefit[B] 
$10,000 maximum lifetime benefitb.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Ohio--PPO; 
Mental health benefits[A]: Inpatient care: Maximum 10 days per year[B] 
20% coinsurance; 
Mental health benefits[A]: Outpatient care: Maximum 10 visits per 
year[B] 20% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): None.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Pennsylvania--FFS (central region); 
Mental health benefits[A]: Inpatient care: Maximum 30 days per year 
20% coinsurance; 
Mental health benefits[A]: Outpatient care: Maximum 60 visits per year
50% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): $50,000 maximum lifetime 
benefit.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Pennsylvania--FFS (western region)[F]; 
Mental health benefits[A]: Inpatient care: Maximum 30 days per year 0% 
coinsurance; 
Mental health benefits[A]: Outpatient care: 50% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): $25,000 maximum lifetime 
benefit[B].

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Texas--PPO; 
Mental health benefits[A]: Inpatient care: Organic brain disease 
only[G] 20% coinsurance; 
Mental health benefits[A]: Outpatient care: Organic brain disease 
only[G] 20% coinsurance; 
Mental health benefits[A]: Separate annual or lifetime 
mental health maximum benefit (dollars): None.

Sources: GAO interviews with health plan officials and reviews of 
health plan Web sites, brochures, and benefit summaries.

Notes: Mini-COBRA plans were also designated as state-qualified plans 
by New York and Ohio; 
however, information on the benefits offered by these plans was not 
readily available and is not included in the table. Federal officials 
estimated that few individuals eligible to receive the HCTC had access 
to mini-COBRA coverage.

The eighth state we reviewed, California, did not designate any state- 
qualified coverage for HCTC recipients.

[A] Benefits are for services received within the health plan's 
network, if applicable.

[B] Applies to mental health and substance abuse benefits combined.

[C] Serious mental illness includes only the following psychiatric 
illnesses: schizophrenia; paranoid and other psychotic disorders; 
bipolar disorders; major depressive disorders; schizo-affective 
disorders; pervasive developmental disorders; obsessive compulsive 
disorders; and depression in childhood and adolescence as defined in 
the American Psychiatric Association's current revision of Diagnostic 
and Statistical Manual of Mental Disorders.

[D] Some states provided state-qualified HCTC coverage through 
arrangements with more than one insurer. In these instances, we 
selected the insurer with the highest HCTC enrollment. New York was 
unable to provide HCTC enrollment data for each of its state-qualified 
HCTC coverage options: we reviewed plans offered by an insurer that 
served areas in which companies had closed and HCTC-eligible 
individuals would likely have resided. The insurer with the largest 
HCTC enrollment in Pennsylvania sold coverage in both the central and 
western regions of the state and this coverage varied between regions.

[E] Healthy NY Plus is an unsubsidized state-based health insurance 
plan available to HCTC recipients who do not meet the income criteria 
for the subsidized Healthy NY plan.

[F] The insurer offered more than one benefits package. We selected 
the benefits package most commonly purchased by HCTC recipients.

[G] Organic brain disease includes dementia, alcohol-or drug-induced 
psychoses, or other disorders listed in the American Psychiatric 
Association's Diagnostic and Statistical Manual of Mental Disorders 
III-R or the International Classification of Diseases, Ninth Revision 
(ICD-9) under diagnostic codes 290 to 294 and 310. Other mental and 
nervous disorders are not covered.

[End of table]

Prescription drug benefits offered by state-qualified health plans in 
the states we reviewed are summarized in table 14. According to a 
national survey of employer-sponsored health benefits, 99 percent of 
employer PPO plans provided coverage for prescription drugs in 2003, 
and 92 percent of all employer-sponsored plans did not require a 
separate prescription drug deductible.[Footnote 69] The average 
copayments for prescription drugs reported in this survey were $9 for 
generic products, $19 for brand-name products that the plan designated 
as preferred, and $29 for brand-name products that the plan did not 
designate as preferred. All but one of the state-qualified plans in 
the states we reviewed included coverage for prescription drugs, and 
the one plan that did not include such coverage offered it as an 
optional benefit available for an additional premium charge. State-
qualified plans in three states we reviewed required a separate annual 
deductible for prescription drugs, ranging from $100 to $250. State-
qualified health plans in five states we reviewed had annual benefit 
maximums for prescription drugs, ranging from $500 to $3,000, and one 
plan did not provide any coverage for brand-name drugs.

Table 14: Prescription Drug Benefits across State-Qualified Health 
Plans in Seven States:

State-qualified HCTC plan: High-risk pools: Illinois--PPO; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): 20% coinsurance Minimum 
$5 copayment per drug Maximum $100 copayment per drug[C]; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): None; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): None.

State-qualified HCTC plan: High-risk pools: Maryland--PPO option; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): $15 generic drugs $20/$35 
brand-name drugs[C]; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): $250; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): None.

State-qualified HCTC plan: High-risk pools: Maryland--EPO option; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): $15 generic drugs 
$20/$35 brand-name drugs[C]; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): $250; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): None.

State-qualified HCTC plan: High-risk pools: Texas--PPO; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): $10 generic drugs 
$25/$40 brand-name drugs[C]; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): None; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): None.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Maryland--FFS; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): 25% coinsurance; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): None; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): $500.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
New York--HMO, Healthy NY; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): Optional benefit[E] 
$10 GENERIC DRUGS $20 brand- name drugsc; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): Optional benefit[E] $100; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): Optional benefit[E] $3,000.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
New York--HMO, Healthy NY Plus[F]; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/ nonpreferred brand-name drugs): $10 generic drugs $20 
brand-name drugs[C]; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): $100; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): $3,000.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
New York--HMO or POS; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): $5 generic drugs 
$10 brand-name drugs; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): $100[G]; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): None.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
North Carolina--PPO[H]; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): $10 generic drugs 
$35/$50 brand-name drugs; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): None; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): $2,000 for brand-name drugs.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Ohio--PPO; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): $15 generic drugs 
No coverage for brand-name drugs; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): None; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): None.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Pennsylvania--FFS (central region); 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/ nonpreferred brand-name drugs): 50% coinsurance[C] 
$10 MINIMUM COINSURANCE PER DRUG $100 maximum coinsurance per drug; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): $250; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): $3,000.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Pennsylvania--FFS (western region)[H]; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/ nonpreferred brand-name drugs): 20% coinsurance; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): None; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): None.

State-qualified HCTC plan: Arrangements with one or more insurers[D]: 
Texas--PPO; 
Prescription drug benefits[A]: Copayment for 1-month supply 
(preferred/nonpreferred brand-name drugs): $15 generic drugs 
$30/$45 brand-name drugs; 
Prescription drug benefits[A]: Separate annual deductible[B] 
(dollars): None; 
Prescription drug benefits[A]: Separate annual prescription drug 
maximum benefit (dollars): $2,500.

Sources: GAO interviews with health plan officials and reviews of 
health plan Web sites, brochures, and benefit summaries.

Notes: Mini-COBRA plans were also designated as state-qualified plans 
by New York and Ohio, however; information on the benefits offered by 
these plans was not readily available and is not included in the 
table. Federal officials estimated that few individuals eligible to 
receive the HCTC had access to mini-COBRA coverage.

The eighth state we reviewed, California, did not designate any state- 
qualified coverage for HCTC recipients.

[A] Benefits are for services received within the health plan's
network, if applicable.

[B] Separate annual deductibles are for one-person coverage. 
Prescription drug benefits could still be subject to an overall 
deductible for all medical services.

[C] In addition to the copayment or coinsurance amount for brand-name 
prescription drugs, the enrollee must pay any cost difference between 
the brand-name and generic drugs if there is a generic version 
available.

[D] Some states provided state-qualified HCTC coverage through 
arrangements with more than one insurer. In these instances, we 
selected the insurer with the highest HCTC enrollment. New York was 
unable to provide HCTC enrollment data for each of its state-qualified 
HCTC coverage options: we reviewed plans offered by an insurer that 
served areas in which companies had closed and HCTC-eligible 
individuals would likely have resided. The insurer with the largest 
HCTC enrollment in Pennsylvania sold coverage in both the central and 
western regions of the state and this coverage varied between regions.

[E] Benefit is offered as an option available for an additional 
monthly premium charge.

[F] Healthy NY Plus is an unsubsidized state-based health insurance 
plan available to HCTC recipients who do not meet the income criteria 
for the subsidized Healthy NY plan.

[G] Applies to coverage sold through HMOs only.

[H] More than one benefits package was offered by the insurer. We 
selected the benefits package most commonly purchased by HCTC 
recipients.

[End of table]

[End of section]

Appendix IV: Premiums Paid by Advance HCTC Enrollees:

The cost of qualified health coverage for advance HCTC enrollees 
varied considerably across states. Total monthly premiums--
representing both the individual and federal shares--were affected by 
the number of people covered on each enrollee's health plan and 
whether the advance HCTC enrollee was a TAA recipient or a PBGC 
beneficiary (see table 15). According to the HCTC program office, most 
advance HCTC enrollees purchased coverage for a single individual or 
for an individual and one other family member. On average, PBGC 
beneficiaries paid more for qualified coverage than TAA recipients.

Table 15: Average Total Monthly Premiums for Advance HCTC Enrollees, 
by State, February 2004:

State: Alabama; 
TAA recipients: Premium for 1 person: $226; 
TAA recipients: Premium for 2 people: $476; 
PBGC beneficiaries: Premium for 1 person: $226; 
PBGC beneficiaries: Premium for 2 people: $427.

State: Alaska; 
TAA recipients: Premium for 1 person: [A]; 
TAA recipients: Premium for 2 people: [A]; 
PBGC beneficiaries: Premium for 1 person: [A]; 
PBGC beneficiaries: Premium for 2 people: [A].

State: Arizona; 
TAA recipients: Premium for 1 person: $312; 
TAA recipients: Premium for 2 people: $654; 
PBGC beneficiaries: Premium for 1 person: $323; 
PBGC beneficiaries: Premium for 2 people: $587.

State: Arkansas; 
TAA recipients: Premium for 1 person: $334; 
TAA recipients: Premium for 2 people: $589; 
PBGC beneficiaries: Premium for 1 person: $397; 
PBGC beneficiaries: Premium for 2 people: $1,028.

State: California; 
TAA recipients: Premium for 1 person: $253; 
TAA recipients: Premium for 2 people: $443; 
PBGC beneficiaries: Premium for 1 person: $279; 
PBGC beneficiaries: Premium for 2 people: $495.

State: Colorado; 
TAA recipients: Premium for 1 person: $322; 
TAA recipients: Premium for 2 people: $577; 
PBGC beneficiaries: Premium for 1 person: $383; 
PBGC beneficiaries: Premium for 2 people: $566.

State: Connecticut; 
TAA recipients: Premium for 1 person: $371; 
TAA recipients: Premium for 2 people: $788; 
PBGC beneficiaries: Premium for 1 person: $372; 
PBGC beneficiaries: Premium for 2 people: $1,031.

State: Delaware; 
TAA recipients: Premium for 1 person: $360; 
TAA recipients: Premium for 2 people: $690; 
PBGC beneficiaries: Premium for 1 person: $666; 
PBGC beneficiaries: Premium for 2 people: $970.

State: District of Columbia; 
TAA recipients: Premium for 1 person: [B]; 
TAA recipients: Premium for 2 people: [B]; 
PBGC beneficiaries: Premium for 1 person: [B]; 
PBGC beneficiaries: Premium for 2 people: [B].

State: Florida; 
TAA recipients: Premium for 1 person: $277; 
TAA recipients: Premium for 2 people: $632; 
PBGC beneficiaries: Premium for 1 person: $550; 
PBGC beneficiaries: Premium for 2 people: $982.

State: Georgia; 
TAA recipients: Premium for 1 person: $291; 
TAA recipients: Premium for 2 people: $706; 
PBGC beneficiaries: Premium for 1 person: $403; 
PBGC beneficiaries: Premium for 2 people: $557.

State: Hawaii; 
TAA recipients: Premium for 1 person: [A]; 
TAA recipients: Premium for 2 people: [A]; 
PBGC beneficiaries: Premium for 1 person: [A]; 
PBGC beneficiaries: Premium for 2 people: [A].

State: Idaho; 
TAA recipients: Premium for 1 person: $235; 
TAA recipients: Premium for 2 people: $534; 
PBGC beneficiaries: Premium for 1 person: $227; 
PBGC beneficiaries: Premium for 2 people: $648.

State: Illinois; 
TAA recipients: Premium for 1 person: $321; 
TAA recipients: Premium for 2 people: $788; 
PBGC beneficiaries: Premium for 1 person: $598; 
PBGC beneficiaries: Premium for 2 people: $595.

State: Indiana; 
TAA recipients: Premium for 1 person: $347; 
TAA recipients: Premium for 2 people: $755; 
PBGC beneficiaries: Premium for 1 person: $487; 
PBGC beneficiaries: Premium for 2 people: $927.

State: Iowa; 
TAA recipients: Premium for 1 person: $284; 
TAA recipients: Premium for 2 people: $554; 
PBGC beneficiaries: Premium for 1 person: $270; 
PBGC beneficiaries: Premium for 2 people: $510.

State: Kansas; 
TAA recipients: Premium for 1 person: $330; 
TAA recipients: Premium for 2 people: $628; 
PBGC beneficiaries: Premium for 1 person: $280; 
PBGC beneficiaries: Premium for 2 people: $383.

State: Kentucky; 
TAA recipients: Premium for 1 person: $309; 
TAA recipients: Premium for 2 people: $513; 
PBGC beneficiaries: Premium for 1 person: $349; 
PBGC beneficiaries: Premium for 2 people: $724.

State: Louisiana; 
TAA recipients: Premium for 1 person: [A]; 
TAA recipients: Premium for 2 people: [A]; 
PBGC beneficiaries: Premium for 1 person: [A]; 
PBGC beneficiaries: Premium for 2 people: [A].

State: Maine; 
TAA recipients: Premium for 1 person: $396; 
TAA recipients: Premium for 2 people: $879; 
PBGC beneficiaries: Premium for 1 person: $370; 
PBGC beneficiaries: Premium for 2 people: $853.

State: Maryland; 
TAA recipients: Premium for 1 person: $320; 
TAA recipients: Premium for 2 people: $707; 
PBGC beneficiaries: Premium for 1 person: $478; 
PBGC beneficiaries: Premium for 2 people: $929.

State: Massachusetts; 
TAA recipients: Premium for 1 person: $286; 
TAA recipients: Premium for 2 people: $659; 
PBGC beneficiaries: Premium for 1 person: $333; 
PBGC beneficiaries: Premium for 2 people: $830.

State: Michigan; 
TAA recipients: Premium for 1 person: $373; 
TAA recipients: Premium for 2 people: $820; 
PBGC beneficiaries: Premium for 1 person: $403; 
PBGC beneficiaries: Premium for 2 people: $861.

State: Minnesota; 
TAA recipients: Premium for 1 person: $276; 
TAA recipients: Premium for 2 people: $583; 
PBGC beneficiaries: Premium for 1 person: $327; 
PBGC beneficiaries: Premium for 2 people: $691.

State: Mississippi; 
TAA recipients: Premium for 1 person: $262; 
TAA recipients: Premium for 2 people: [B]; 
PBGC beneficiaries: Premium for 1 person: $453; 
PBGC beneficiaries: Premium for 2 people: $868.

State: Missouri; 
TAA recipients: Premium for 1 person: $315; 
TAA recipients: Premium for 2 people: $716; 
PBGC beneficiaries: Premium for 1 person: $264; 
PBGC beneficiaries: Premium for 2 people: $523.

State: Montana; 
TAA recipients: Premium for 1 person: $562; 
TAA recipients: Premium for 2 people: $626; 
PBGC beneficiaries: Premium for 1 person: [B]; 
PBGC beneficiaries: Premium for 2 people: [B].

State: Nebraska; 
TAA recipients: Premium for 1 person: $329; 
TAA recipients: Premium for 2 people: $613; 
PBGC beneficiaries: Premium for 1 person: $327; 
PBGC beneficiaries: Premium for 2 people: $591.

State: Nevada; 
TAA recipients: Premium for 1 person: [B]; 
TAA recipients: Premium for 2 people: [B]; 
PBGC beneficiaries: Premium for 1 person: $267; 
PBGC beneficiaries: Premium for 2 people: $801.

State: New Hampshire; 
TAA recipients: Premium for 1 person: $329; 
TAA recipients: Premium for 2 people: $529; 
PBGC beneficiaries: Premium for 1 person: $395; 
PBGC beneficiaries: Premium for 2 people: $581.

State: New Jersey; 
TAA recipients: Premium for 1 person: $350; 
TAA recipients: Premium for 2 people: $769; 
PBGC beneficiaries: Premium for 1 person: $386; 
PBGC beneficiaries: Premium for 2 people: $586.

State: New Mexico; 
TAA recipients: Premium for 1 person: [A]; 
TAA recipients: Premium for 2 people: [A]; 
PBGC beneficiaries: Premium for 1 person: [A]; 
PBGC beneficiaries: Premium for 2 people: [A].

State: New York; 
TAA recipients: Premium for 1 person: $267; 
TAA recipients: Premium for 2 people: $454; 
PBGC beneficiaries: Premium for 1 person: $378; 
PBGC beneficiaries: Premium for 2 people: $719.

State: North Carolina; 
TAA recipients: Premium for 1 person: $415; 
TAA recipients: Premium for 2 people: $716; 
PBGC beneficiaries: Premium for 1 person: $478; 
PBGC beneficiaries: Premium for 2 people: $997.

State: North Dakota; 
TAA recipients: Premium for 1 person: [A]; 
TAA recipients: Premium for 2 people: [A]; 
PBGC beneficiaries: Premium for 1 person: [A]; 
PBGC beneficiaries: Premium for 2 people: [A].

State: Ohio; 
TAA recipients: Premium for 1 person: $274; 
TAA recipients: Premium for 2 people: $674; 
PBGC beneficiaries: Premium for 1 person: $461; 
PBGC beneficiaries: Premium for 2 people: $842.

State: Oklahoma; 
TAA recipients: Premium for 1 person: $273; 
TAA recipients: Premium for 2 people: $527; 
PBGC beneficiaries: Premium for 1 person: $277; 
PBGC beneficiaries: Premium for 2 people: $891.

State: Oregon; 
TAA recipients: Premium for 1 person: $305; 
TAA recipients: Premium for 2 people: $614; 
PBGC beneficiaries: Premium for 1 person: $325; 
PBGC beneficiaries: Premium for 2 people: $617.

State: Pennsylvania; 
TAA recipients: Premium for 1 person: $323; 
TAA recipients: Premium for 2 people: $696; 
PBGC beneficiaries: Premium for 1 person: $509; 
PBGC beneficiaries: Premium for 2 people: $938.

State: Puerto Rico; 
TAA recipients: Premium for 1 person: [B]; 
TAA recipients: Premium for 2 people: [B]; 
PBGC beneficiaries: Premium for 1 person: [B]; 
PBGC beneficiaries: Premium for 2 people: [B].

State: Rhode Island; 
TAA recipients: Premium for 1 person: [A]; 
TAA recipients: Premium for 2 people: [A]; 
PBGC beneficiaries: Premium for 1 person: [A]; 
PBGC beneficiaries: Premium for 2 people: [A].

State: South Carolina; 
TAA recipients: Premium for 1 person: $310; 
TAA recipients: Premium for 2 people: $591; 
PBGC beneficiaries: Premium for 1 person: $676; 
PBGC beneficiaries: Premium for 2 people: $869.

State: South Dakota; 
TAA recipients: Premium for 1 person: [A]; 
TAA recipients: Premium for 2 people: [A]; 
PBGC beneficiaries: Premium for 1 person: [A]; 
PBGC beneficiaries: Premium for 2 people: [A].

State: Tennessee; 
TAA recipients: Premium for 1 person: $336; 
TAA recipients: Premium for 2 people: $636; 
PBGC beneficiaries: Premium for 1 person: $421; 
PBGC beneficiaries: Premium for 2 people: $897.

State: Texas; 
TAA recipients: Premium for 1 person: $321; 
TAA recipients: Premium for 2 people: $662; 
PBGC beneficiaries: Premium for 1 person: $481; 
PBGC beneficiaries: Premium for 2 people: $693.

State: Utah; 
TAA recipients: Premium for 1 person: [A]; 
TAA recipients: Premium for 2 people: [A]; 
PBGC beneficiaries: Premium for 1 person: [A]; 
PBGC beneficiaries: Premium for 2 people: [A].

State: Vermont; 
TAA recipients: Premium for 1 person: [A]; 
TAA recipients: Premium for 2 people: [A]; 
PBGC beneficiaries: Premium for 1 person: [A]; 
PBGC beneficiaries: Premium for 2 people: [A].

State: Virginia; 
TAA recipients: Premium for 1 person: $275; 
TAA recipients: Premium for 2 people: $543; 
PBGC beneficiaries: Premium for 1 person: $393; 
PBGC beneficiaries: Premium for 2 people: $839.

State: Washington; 
TAA recipients: Premium for 1 person: $337; 
TAA recipients: Premium for 2 people: $663; 
PBGC beneficiaries: Premium for 1 person: $289; 
PBGC beneficiaries: Premium for 2 people: $520.

State: West Virginia; 
TAA recipients: Premium for 1 person: $312; 
TAA recipients: Premium for 2 people: $774; 
PBGC beneficiaries: Premium for 1 person: $441; 
PBGC beneficiaries: Premium for 2 people: $933.

State: Wisconsin; 
TAA recipients: Premium for 1 person: $387; 
TAA recipients: Premium for 2 people: $749; 
PBGC beneficiaries: Premium for 1 person: $329; 
PBGC beneficiaries: Premium for 2 people: $841.

State: Wyoming; 
TAA recipients: Premium for 1 person: [B]; 
TAA recipients: Premium for 2 people: [B]; 
PBGC beneficiaries: Premium for 1 person: [B]; 
PBGC beneficiaries: Premium for 2 people: [B].

Average across states; 
TAA recipients: Premium for 1 person: $346; 
TAA recipients: Premium for 2 people: $660; 
PBGC beneficiaries: Premium for 1 person: $460; 
PBGC beneficiaries: Premium for 2 people: $877.

Source: IRS's HCTC program office.

Notes: The most current state data available from the HCTC program 
office on the average monthly premium costs of TAA recipients and PBGC 
beneficiaries receiving the advance HCTC were from February 2004.

Data for Puerto Rico are also included in this table.

[A] Because of IRS disclosure and privacy regulations, premium data 
are only reported for states in which 10 or more individuals were 
receiving the advance HCTC in February 2004.

[B] There were no PBGC beneficiaries or TAA recipients using the 
advance HCTC to purchase plans covering this number of people in this 
state.

[End of table]

[End of section]

Appendix V: Amount Awarded for National Emergency Grants and High-Risk 
Pool Grants, by State, August 2004:

State: Alaska; 
National emergency grant: Infrastructure grant: $100,000; 
High risk pool: Operating grant: $495,769.

State: Alabama; 
National emergency grant: Infrastructure grant: $55,206.

State: Arizona; 
National emergency grant: Infrastructure grant: $74,717.

State: Arkansas; 
National emergency grant: Infrastructure grant: $200,000; 
High risk pool: Operating grant: $1,764,129.

State: California; 
National emergency grant: Infrastructure grant: $50,000.

State: Colorado; 
National emergency grant: Infrastructure grant: $184,615; 
High risk pool: Operating grant: $2,945,322.

State: Connecticut; 
National emergency grant: Infrastructure grant: $189,700; 
High risk pool: Operating grant: $1,460,719.

State: Delaware; 
National emergency grant: Infrastructure grant: $50,500.

State: Florida; 
National emergency grant: Infrastructure grant: $288,020.

State: Georgia; 
National emergency grant: Infrastructure grant: $199,953.

State: Hawaii; 
National emergency grant: Infrastructure grant: $23,400.

State: Idaho; 
National emergency grant: Infrastructure grant: $150,000.

State: Illinois; 
National emergency grant: Infrastructure grant: $127,266; 
High risk pool: Operating grant: $7,451,658.

State: Indiana; 
High risk pool: Operating grant: $2,889,802.

State: Iowa; 
National emergency grant: Infrastructure grant: $200,000; 
High risk pool: Operating grant: $1,018,945.

State: Kansas; 
National emergency grant: Infrastructure grant: $150,000; 
High risk pool: Operating grant: $1,337,299.

State: Kentucky; 
National emergency grant: Infrastructure grant: $50,000; 
High risk pool: Operating grant: $2,297,008.

State: Louisiana; 
National emergency grant: Infrastructure grant: $50,000.

State: Maine; 
National emergency grant: Bridge grant: $7,500,000; 
National emergency grant: Infrastructure grant: $136,853.

State: Maryland; 
National emergency grant: Bridge grant: $5,632,000; 
National emergency grant: Infrastructure grant: $579,867; 
High risk pool: Seed grant: $1,000,000.

State: Massachusetts; 
National emergency grant: Infrastructure grant: $150,000.

State: Michigan; 
National emergency grant: Infrastructure grant: $128,384.

State: Minnesota; 
National emergency grant: Bridge grant: $4,000,000; 
National emergency grant: Infrastructure grant: $81,551; 
High risk pool: Operating grant: $1,710,789.

State: Mississippi; 
High risk pool: Operating grant: $1,890,350.

State: Missouri; 
National emergency grant: Infrastructure grant: $98,456.

State: Montana; 
National emergency grant: Bridge grant: $266,923; 
National emergency grant: Infrastructure grant: $36,572; 
High risk pool: Operating grant: $638,228.

State: Nebraska; 
National emergency grant: Infrastructure grant: $97,156; 
High risk pool: Operating grant: $719,841.

State: Nevada; 
National emergency grant: Infrastructure grant: $92,738.

State: New Hampshire; 
National emergency grant: Infrastructure grant: $150,000; 
High risk pool: Seed grant: $1,000,000; 
High risk pool: Operating grant: $224,559.

State: New Jersey; 
National emergency grant: Bridge grant: $1,930,000; 
National emergency grant: Infrastructure grant: $200,000.

State: New Mexico; 
National emergency grant: Infrastructure grant: $78,499.

State: New York; 
National emergency grant: Infrastructure grant: $214,425.

State: North Carolina; 
National emergency grant: Bridge grant: $7,614,684; 
National emergency grant: Infrastructure grant: $141,971.

State: North Dakota; 
High risk pool: Operating grant: $310,349.

State: Ohio; 
National emergency grant: Bridge grant: $1,600,000; 
National emergency grant: Infrastructure grant: $222,105; 
High risk pool: Seed grant: $150,000.

State: Oklahoma; 
High risk pool: Operating grant: $2,681,597.

State: Oregon; 
National emergency grant: Infrastructure grant: $144,369.

State: Pennsylvania; 
National emergency grant: Infrastructure grant: $394,908.

State: Rhode Island; 
National emergency grant: Infrastructure grant: $152,000.

State: South Carolina; 
National emergency grant: Infrastructure grant: $200,000.

State: South Dakota; 
National emergency grant: Infrastructure grant: $57,760; 
High risk pool: Seed grant: $1,000,000.

State: Tennessee; 
National emergency grant: Infrastructure grant: $244,779.

State: Texas; 
National emergency grant: Infrastructure grant: $200,000.

State: Utah; 
National emergency grant: Bridge grant: $2,173,097; 
National emergency grant: Infrastructure grant: $362,256; 
High risk pool: Seed grant: $52,618.

State: Vermont; 
National emergency grant: Infrastructure grant: $50,000.

State: Virginia; 
National emergency grant: Bridge grant: $3,176,800; 
National emergency grant: Infrastructure grant: $12,702.

State: Washington; 
National emergency grant: Bridge grant: $1,512,000; 
National emergency grant: Infrastructure grant: $74,219.

State: West Virginia; 
National emergency grant: Bridge grant: $2,852,374; 
National emergency grant: Infrastructure grant: $117,053; 
High risk pool: Seed grant: $500,000.

State: Wisconsin; 
National emergency grant: Infrastructure grant: $256,245.

State: Total awards; 
National emergency grant: Bridge grant: $38,257,878; 
National emergency grant: Infrastructure grant: $6,818,245; 
High risk pool: Seed grant: $3,702,618; 
High risk pool: Operating grant: $29,836,364.

Total number of states; 
National emergency grant: Bridge grant: $11; 
National emergency grant: Infrastructure grant: $45; 
High risk pool: Seed grant: $6; 
High risk pool: Operating grant: $16. 

Sources: Department of Labor for national emergency grants and CMS for 
high-risk pool grants.

[End of table]

[End of section]

Appendix VI: Comments from the Department of Labor:

Pages 1 to 4 of the enclosed comments were technical in nature and are 
not reproduced in this report.

U.S. Department of Labor:
Assistant Secretary for Employment and Training: 
Washington. D.C. 20210:

SEP 16 2004:

Ms. Kathryn G. Allen: 
Director:
Health Care-Medicaid and Private Health Insurance Issues: 
U.S. Government Accountability Office: 
441 G Street, NW:
Washington, D.C. 20548:

Dear Ms. Allen:

The Employment and Training Administration is in receipt of the draft 
Government Accountability Office (GAO) report, "HEALTH COVERAGE TAX 
CREDIT: Simplified and More Timely Process Could' Increase 
Participation," GAO-04-1029. The objectives of the study were to 
examine: (1) how many individuals are receiving the Health Coverage Tax 
Credit (HCTC); (2) the factors influencing participation; and (3) the 
type and cost of coverage they purchase.

The report includes five specific recommendations for executive action. 
These include: (1) provide a centralized resource for individuals to 
receive information and assistance with HCTC eligibility criteria; (2) 
evaluate the effect of reducing service levels by the Internal Revenue 
Service (IRS) on the provision of timely and appropriate information, 
responses to inquiries, enrollment processing, and advance HCTC 
payments; (3) improve the quality of eligibility information provided 
by the states; (4) simplify IRS processing for advance HCTC recipients 
and avoid disruptions resulting from premium changes; and (5) provide a 
report to Congress regarding how Pension Benefit Guaranty Corporation 
(PBCG) beneficiaries receiving HCTC are affected due to turning 65. It 
is the first and third of these recommendations for executive action 
which appear to relate to the responsibilities of the Employment and 
Training Administration.

We believe the enclosed comments can improve the final report. If you 
would like additional information, please don't hesitate to contact me 
at (202) 693-2700.

Sincerely,

Signed for: 

Emily Stover DeRocco: 

Enclosure:

Draft Government Accountability Office (GAO) Report (GAO-04-1029) 
"HEALTH COVERAGE TAX CREDIT: Simplified and More Timely Enrollment 
Process Could Increase Participation"

Comments on Overall Report:

* On pages 1 and 2, the reference should be to the Pension Benefit 
Guaranty Corporation, not Pension Benefit Guarantee Corporation.

* On page 2, the GAO report states in the first sentence: "The Trade 
Adjustment Assistance Reform Act of 2002 created a health coverage tax 
credit for ... are eligible to receive Trade Adjustment Assistance 
(TAA) and for certain retirees..." ETA suggests that this be revised 
for clarity as follows: "The Trade Adjustment Assistance (TAA) Reform 
Act of 2002 created a health coverage tax credit for ... are eligible 
to receive either Trade Readjustment Allowances (TRA) under the TAA 
program or wage subsidies under the Alternative Trade Adjustment 
Assistance for Older Workers (ATAA) program and for certain 
retirees..."

On page 5, line 20, the GAO report states; "Labor provided us with 
information on the NEG awards, and..." ETA suggests that this statement 
be expanded to state: "Labor provided us with information on the NEG 
awards and the process by which state workforce agencies report 
individuals who are potentially eligible for the credit to the IRS, 
and..."

On page 10, footnote 12 should be revised as follows to clarify the 
qualifying conditions of TRA that must be met: "TAA-eligible workers 
who meet the qualifying conditions for trade readjustment allowances 
except for the condition that they have exhausted unemployment 
insurance benefits are also eligible to receive HCTC. The qualifying 
conditions include that the worker is enrolled in or has received a 
waiver from training."

* On page 12, footnote 17, the GAO report states: See 29 U.S.C. §§1161-
1169, 42 U.S.C. §§300bb-1 through 300bb-8, 42 U.S.C. §§300bb-1 through 
300bb-8 (2000)." ETA suggests that this footnote be revised as follows: 
26 U.S.C. §4980B (2000), 29 U.S.C. §§1161-1168 (2000), 42 U.S.C. 
§§300bb-1 through 300bb-8."

* On page 13, the GAO reports states in the third bullet point: 
"Because COBRA provisions only apply to employer plans covering 20 or 
more workers, some states have enacted so-called mini-COBRA laws 
requiring employers with fewer than 20 workers to offer continuation 
coverage." ETA suggests that this sentence should be revised as 
follows: "Because COBRA provisions only apply to plans maintained by 
employers with 20 or more workers, some states have 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."

* On page 15, the report states: "Three federal departments-Treasury, 
Labor, and HHS-share responsibility for implementing the HCTC ..." ETA 
suggests the following language: "Although the IRS is responsible for 
the administration of the HCTC program„three federal departments-
Treasury, Labor, and HHS-shared responsibility for implementing the 
HCTC created by the TAA Reform Act. The three departments continue to 
work together to oversee the HCTC program."

* ETA proposes that the following footnote by added on page 15: * 
Congress did not appropriate funds for the Department of Labor, the 
Pension Benefit Guaranty' Corporation, or Health and Human Services 
(HHS) specifically for the implementation of the HCTC.

In the second sentence on page 16, the GAO report states: "It begins 
with a qualifying event..." ETA would clarify this statement as 
follows: "Potential eligibility begins with a qualifying event..."

Currently the heading for figure 1 on page 18 is "Steps Required to 
Enroll for and Receive Advance HCTC." ETA would revise it as follows: 
"Steps Required to Qualify for and Receive the HCTC." Also, Steps 1 and 
2 must be corrected to reflect the following: For Step f-Qualifying 
Event: a displaced worker for trade-certification purposes should be 
defined as "A primary or secondary worker who loses his or her job due 
to imports from or a shift in production to certain foreign countries." 
For Step 2-Eligibility Determination: "Petitions for certification 
under TAA may be filed by a group of three or more workers, a labor 
union, which represents the workers, company officials from the 
affected company, operators or partners of the local One-Stop Career 
Center, or the State Dislocated Worker Unit. Labor investigates and 
certifies the petition and notifies the petitioners and the state 
workforce agency." It should be noted as well that the enrollment 
process for the advance credit starts at step 3 in Figure 1 when the 
individual calls to enroll after receipt of the HCTC package.

* In the first full paragraph on page 23, the GAO report language 
states: "States and PBGC-who develop lists of potential eligibles - do 
not screen the lists they send to the HCTC program office for all 
health coverage and tax eligibility criteria." ETA suggests that that 
language be revised as follows: "States and PBGC are responsible for 
identifying and reporting individuals who are eligible for TRA and 
PBGC. The responsibility for assessing the health coverage or tax 
eligibility criteria lies with the HCTC office. Therefore, individuals 
identified by states and PBGC are only considered potentially eligible 
for the HCTC, since the health coverage and tax eligibility criteria 
must also be met for HCTC eligibility."

* On page 23, the fourth sentence in the first full paragraph reads: 
"For example, the October 2003, HCTC program office survey found that 
about half of those identified as potentially eligible, but not 
enrolled, for the advance HCTC were in fact ineligible because they had 
other coverage such as Medicare or through a spouse's employer that 
made them ineligible for the advance HCTC" ETA suggests the following 
language: " For example, the October 2003, HCTC program office survey 
found that about half of those identified as eligible TAA or PBGC 
recipients, thus potentially eligible for the HCTC, were, in fact, 
ineligible for the HCTC because they had other health coverage such as 
Medicare or through a spouse's employer."

* On page 24, under the heading "Several factor may limit..." the 
report concludes that the factors limiting the number of individuals 
who receive HCTC include "the fragmentation and complexity of the 
eligibility and enrollment process, the time lag before the advance 
payments are available,..." ETA suggests that this sentence be revised 
as follows: "...the fragmentation and complexity of the eligibility and 
enrollment process, initial and ongoing TAA/TRA eligibility criteria, 
and PBGC program requirements resulting in a time lag before the 
advance payments are available, ... "

* On page 25, there is an anecdotal description of how HCTC information 
was provided to potentially eligible individuals. However, what is 
missing is a discussion of the formal information system that has been 
implemented to answer questions from the public concerning HCTC. ETA 
would recommend that there be a discussion of the HCTC Contact Center, 
the elaborate scripts that have been vetted by the various agencies 
involved in this HCTC process and provided to trained customer service 
representatives, as well as the referral system to the ETA Help Line 
and the state workforce agencies.

* On page 26, the first sentence should be clarified with respect to 
the eligibility requirements as follows: "...the requirement that 
individuals must be receiving a trade readjustment allowance or meet 
the qualifying conditions for such allowances (except for exhaustion of 
unemployment insurance benefits), which include the conditions that 
more than 60 days have passed since the filing of a petition for 
certification with the Secretary of Labor and that the worker be 
enrolled in training or receive a waiver from training, added to the 
time and complexity of the advance HCTC eligibility and enrollment 
process and could limit participation."

* Regarding Figure 3 on page 27, ETA views this as an overly simplified 
timeline illustrating when Trade-affected workers may receive the 
advance HCTC payment. It assumes that the worker simultaneously looses 
employment and petitions the Department of Labor (DOL) for a Trade 
Adjustment Assistance (TAA) certification. Although it is possible that 
both events may happen at the same time, it is not the norm. Many 
workers are already covered by a certification when they lose their 
jobs or the petition is filed weeks or months after their employment 
ends.

* In the first paragraph on page 53, ETA suggests the addition of 
similar language to the following to this part of the report:

"The verification process creates a significant workload on both the 
HCTC program staff and the state workforce agencies. Although states 
have received NEG infrastructure grants for HCTC purposes, the 
verification (audit) process was not envisioned as an ongoing activity. 
Additionally, the IRS letters to Ul and TRA claimants concerning the 
denial of their end-of-year HCTC claims and the instructions that the 
taxpayer contact the state workforce agency was also not envisioned and 
has become an additional burden on the states. Since these activities 
are recognized as necessary --and because UI administrative funds may 
not be used for HCTC-related activities --states need to request 
additional NEG funds for these ongoing costs to ensure that staff and 
resources are devoted to improving the process."

There is general agreement that some small percentage of incomplete 
records by the state workforce agencies is likely uncontrollable due to 
the complexity of the TAA program requirements; therefore, the 
verification (audit) process may be needed on an ongoing basis.

While all states have automated payment systems for regular state 
unemployment insurance (UI) benefits, which create much larger 
workloads for state workforce agencies than TRA, some states do not 
have automated systems for payment of TRA since these workloads are 
much smaller.

* On pages 59-60, this part of the report appears to apply primarily to 
the bridge NEGS, rather than infrastructure NEGs. Procedures for 
requesting bridge NEG funds were outlined in Training and Employment 
Guidance Letter No. 20-02 dated March 3, 2003. Unemployment insurance 
(UI) grant funds may not be used to cover non-UI activities, and all 
states were advised to request NEG funds to cover costs related to 
their responsibilities involving the HCTC.

* On page 63 of the report, in the last bullet the word "agreements" 
after "trade" should be deleted.

Specific Comments on the GAO Recommendations for Executive Action:

Recommendation 1: To help individuals understand and comply with the 
multiple health coverage, labor, 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 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.

* ETA agrees that the provision of information to individuals regarding 
HCTC is essential because of the complexity of this program. However, 
we would recommend that there be a review of the existing system, 
including the quality of the information provided to individuals as 
well as the referrals made to other federal agencies and the state 
workforce agencies. This review would include the HCTC Contact Center, 
including the scripts and information trees that are currently used by 
the CSRs, and the ETA Help Line, including the scripts and information 
trees. Also of interest would be the role of the state workforce 
agencies in providing information. Once this review is completed, 
recommendations could be implemented to improve this system.

* In addition, we think it is important to summarize our 
accomplishments to date to implement the Trade Reform Act of 2002.

-Upon enactment of the legislation in August 2002, 15 training sessions 
were conducted from November 2002 through January 2003 on the 
provisions of the Act in eight locations around the country. Theses 
sessions included representatives from state and local workforce 
investment entities, business groups, unions, intergovernmental 
organizations and other interested parties.

-Numerous directives were developed and issued containing policy and 
guidelines on implementation of the Act's requirements. Directives 
provided guidance on how to apply for infrastructure grants to support 
building of the system to transmit the names of potentially eligible 
trade-certified individuals to the HCTC operations center, as well as 
how to apply for grants to support partial payment of health coverage 
premiums.

-Outreach resources were developed to inform interested parties of the 
provisions of the new Act and how to access assistance for the HCTC. 
These resources include a new web site on the program and a brochure 
designed to provide businesses, unions, worker groups and interested 
individuals with information on the program.

-Six regional forums launched to emphasize the importance of an 
integrated approach among programs and funding streams serving 
dislocated workers, including situations where trade contributed 
importantly to the dislocation. These forums were used to clarify 
policy and guidance relative to the Act's provisions including the HCTC 
program.

Recommendation 3: 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.

* ETA agrees with this recommendation that the Department of Labor and 
the IRS need to continue to work together, and assist the HCTC office 
and the state workforce agencies to improve the process and the data.

On page 70, Appendix II, the GAO report states that "State-based 
continuation coverage pertaining to employers with fewer than 20 
employees, also known as mini-COBRA coverage, was designated by 11 
states, and was the sole state-qualified coverage option available to 
HCTC recipients in 3 states (see table 10)." ETA suggests that this 
sentence be revised as follows: "State-based continuation coverage 
pertaining to insurers providing coverage to plans maintained by 
employers with fewer than 20 employees, also known as mini-COBRA 
coverage.

[End of section]

Appendix VII: Comments from the Internal Revenue Service:

DEPARTMENT OF THE TREASURY: 
INTERNAL REVENUE SERVICE: 
WASHINGTON, D.C. 20224:

COMMISSIONER:

September 8, 2004:

Ms. Kathryn G. Allen:
Director, Health Care-Medicaid and Private Health Insurance Issues: 
United States Government Accountability Office: 
Washington, DC 20548:

Dear Ms. Allen:

I have reviewed your proposed report entitled "Health Coverage Tax 
Credit: Simplified and More Timely Enrollment Process Could Increase 
Participation" (GAO-04-1029). Your report recognizes the challenges 
that the Internal Revenue Service (IRS) and other federal and state 
agencies, as well as private entities, faced in timely implementing the 
provisions of the Trade Adjustment Assistance Act of 2002 (Trade Act), 
which created the Health Coverage Tax Credit (HCTC).

The Trade Act provided important new benefits for eligible individuals 
but presented significant new responsibilities for the IRS. 
Responsibility for determining individuals' eligibility for the credit, 
and whether those eligible individuals had purchased qualified 
insurance, was spread among multiple state and federal agencies. In 
addition, as the nation's tax collector, IRS had to develop expertise 
in administering health insurance benefits, because we had neither 
systems nor processes in place to implement the advance payment option 
at the time of passage of the Trade Act. IRS' processes are based on 
receiving information and data from taxpayers and refunding payments to 
taxpayers. Because data for the advance payment is received from state 
agencies and health insurance providers, existing IRS tax systems could 
not be used to receive, retain, or verify that data and issue payments 
to third-parties.

As your report noted, IRS implemented the HCTC on time and addressed 
most early implementation issues. We designed and implemented an 
advance payment system for health coverage; learned to identify and 
enroll potentially eligible individuals from two other Government 
programs; established new relationships with states, health plans, and 
other partners; and accomplished this within a very short timeframe. 
Successful implementation of the HCTC within the timeframe set by 
Congress was the result of close collaboration between federal and 
state agencies and the use of contractors to administer the advance 
payment portion of the HCTC.

Since late 2002, the IRS established the HCTC program office, engaged 
the services of a contractor to aid in program design and 
implementation, developed new tax forms and outreach materials, 
established a customer contact center, published information on the IRS 
website for all partners and participants, and developed and enhanced 
processes for processing HCTC claims made with the tax return. The IRS 
and the Department of the Treasury have been very aggressive in 
recruiting state-qualified plans. In February 2003 there were no state-
qualified health plans and there are now 39 states with at least one 
designated qualified plan. Similarly, we have continuously worked with 
every state to help them understand the overall program, identify 
qualified health plans, and integrate federal-state efforts to 
maximize potentially eligible candidates' understanding and 
participation in the program.

As a result, more than 19,000 individuals were able to receive $37.3 
million in HCTC benefits for the year 2003. The 19,000 includes 
individuals who enrolled in the advance payment program plus those who 
received the credit on their tax return, and a combination of both. In 
2004, enrollment in the advance option is steadily growing. Over 12,000 
are now enrolled in the advance program compared to 6,800 in 2003. 
Since the advance payment program's inception, a cumulative 
participation of 17,900 individuals has been achieved as of July 31, 
2004. Most importantly, we have learned that an advance payment for 
health care coverage is a viable option for administering this program.

The Trade Act set out substantial requirements for qualification and 
enrollment, in a process requiring participants to interact with 
multiple federal and state agencies, as well as private insurers. The 
GAO report recognizes the complexities of the process and the agencies' 
efforts to minimize their effect on participants to the extent possible 
in light of legal requirements.

These successes are due in large part to new and important partnerships 
developed at the federal and state level. The IRS established working 
relationships with the Department of Labor (DOL) and the Pension 
Benefit Guaranty Corporation (PBGC) to coordinate our efforts, and also 
developed relationships with non-government organizations to obtain 
their assistance and support in establishing the HCTC program. We have 
relied on labor unions and health plan associations to inform their 
members about HCTC and its requirements, and both were instrumental in 
helping identify qualified plans and supplementing HCTC outreach to 
individuals in several states. These relationships and efforts were 
critical in launching the advance HCTC program and remain so as we work 
to improve the program. The HCTC program office also worked very hard 
to develop a system that was flexible and fulfilled a variety of health 
plans' needs and concerns. With considerable help from the health plan 
community, we believe we have addressed these issues and have an 
effective payment process in place.

However, as outlined in your report, some challenges remain. The IRS 
has and continues to use HCTC communication channels to emphasize the 
importance of state eligibility data quality, and has established the 
HCTC monthly eligibility review process as a tool for the states to use 
in their efforts to improve data quality. The IRS can only identify 
processing errors as they occur and recommend solutions, but the IRS 
does not have the authority to require the states to implement them. 
Continued collaboration with DOL will be important as we work to 
consider and implement approaches that could improve overall data 
quality.

Participants who claim the HCTC in advance often must pay 100 percent 
of the cost of health coverage for possibly one or more months before 
they are enrolled in the advance payment program. How quickly an 
individual registers, provides the required documentation, and whether 
the individual's health plan is currently enrolled to receive advance 
payments from the HCTC program affect the number of months it takes to 
enroll in HCTC. As a result, to minimize burden on individuals, we are 
working very hard to shorten the HCTC enrollment period of 3-6 months. 
However, the first 3 months of the 3-6 month period is the result of 
the Trade Adjustment Assistance (TAA) certification requirements under 
the Trade Act.

To enable state workforce agencies to help individuals maintain their 
health coverage between job loss and advance payment of the HCTC, the 
Trade Act established National Emergency Grant (NEG) Bridge funds. The 
IRS does not directly administer the NEG Bridge program, but has 
integrated the availability of NEG funds into HCTC marketing and 
outreach efforts. Additionally, we continue to explore opportunities to 
streamline our processes to expedite individuals' receipt of the HCTC.

The IRS is transitioning the HCTC Program from development and 
implementation to an operational environment. Recent contract 
restructuring has resulted in a projected savings of close to 30 
percent. The IRS is also identifying ways to use existing IRS resources 
to supplant contractor resources, and projects that annual operating 
costs will decrease as processes are enhanced. An analysis by IRS' 
Office of Program Evaluation and Risk Analysis, currently underway, 
will identify administrative process and efficiency improvements and 
gain insights to eligibility demographics that will help maximize the 
effectiveness of our outreach efforts.

We would like to clarify several observations in your report regarding 
qualified health plans. First, the report mentions the diversity in 
benefits offered in various state qualified plans. The Trade Act does 
not give the IRS the authority to regulate the benefits offered by 
state qualified plans. This is a decision made solely by the states and 
the plans that voluntarily agree to participate. The IRS' role is 
limited to (1) verifying through the states, typically the state 
Department of Insurance, that the plans meet the four consumer 
protections established in the Trade Act and (2) providing state-
qualified plan contact information on the IRS web site and through the 
HCTC customer contact center. Potentially eligible individuals must 
contact the qualified plans directly to obtain information about 
benefits or premiums.

Second, some plans have expressed a reluctance to participate in the 
HCTC program because they are unsure of the HCTC population's health 
status. A number of participating plans and plan associations have 
agreed to help the IRS establish a better understanding of the 
enrolling population when a full calendar year of data are available, 
some time in 2005. We hope that this data will help encourage more 
health plans to participate in the HCTC. Finally, the consumer 
protections in the Trade Act differ significantly from existing state 
and federal insurance laws. This creates substantial uncertainty for 
insurers trying to decide whether to participate in the HCTC program.

We agree with your recommendations to accept notification of premium 
changes from participating health plans rather than relying on 
participants to provide this information. We will also work with PBGC 
to estimate the number of PBGC beneficiaries previously receiving HCTC 
that have lost their eligibility at attaining age 65 and the number 
whose spouses and/or dependents also have become ineligible for the 
HCTC due to the beneficiaries ineligibility upon turning age 65. We 
recognize that changes, such as amending certain TAA program 
requirements and helping eligible individuals maintain their rights to 
guaranteed coverage, may have broader implications for labor and health 
policy.

Our specific response to your recommendation for Executive Action is 
attached.

We appreciate the opportunity to address your recommendation and look 
forward to working with DOL, PBGC, and the states in improving the 
enrollment process, expediting payments, and improving outreach to 
potential participants. If you have any questions, please call Floyd 
Williams, Director, Legislative Affairs, at (202) 622-3720.

Sincerely,

Signed for: 

Mark W. Everson:

Enclosure:

The IRS' Response to Recommendations included in GAO-04-1029, "Health 
Coverage Tax Credit --Simplified and More Timely Enrollment Process 
Could Increase Participation."

Recommendation:

We recommend that the Secretary of Labor, Commissioner of Internal 
Revenue, Administrator of Centers for Medicare and Medicaid Services 
(CMS), and Executive Director of the PBGC work together to take the 
following five actions.

The IRS generally agrees, and our responses to each of the recommended 
actions are as follows:

A) To help individuals understand and comply with the multiple health 
coverage, labor, and tax 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 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.

Response:

Early on the IRS recognized the benefits of centralizing information 
and assistance for HCTC candidates. We made significant efforts to lay 
the foundation for delivering consistent messages about HCTC and, to 
the greatest extent possible, provide a centralized source of HCTC 
information and assistance with input from our federal, state, and 
private partners. The results of our efforts include:

* The HCTC brochure, program kit and registration form for individuals, 
* The State Toolkit, which outlined roles and responsibilities and 
provided training for Governors' offices, state departments of 
insurance, and the state workforce agencies,
* Extensive content on the IRS website (www.irs.gov), and
* Early establishment of the HCTC Customer Contact Center, offering 
individuals, our partners, and the public another significant resource 
to address questions about the program.

Additionally, together with representatives from multiple state 
agencies, local qualified health plans, and labor unions, we organized 
a series of on-site registration sessions in 11 states. These sessions 
provided individualized assistance in completing each step of the 
eligibility and enrollment process. While over 4,000 HCTC candidates 
attended the sessions and over half completed forms or registered to 
receive advance payments, none of the agencies or health plans involved 
have the resources to support such an effort on a routine basis. The 
IRS has explored requirements for creating a virtual registration 
support capacity. However, the numbers of affected agencies and health 
plans, as well as privacy and disclosure issues, make such a solution 
a major challenge.

In the interim, we will explore further development of our web and call 
center capabilities as we work with the Department of Labor (DOL), 
PBGC, and CMS to identify any possible cost-effective ways to meet this 
need we have not already considered.

B) 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.

Response:

Your report highlights our service level for processing HCTC 
registrations. This service level has not changed. The service levels 
most recently defined are part of our transition from implementation to 
operations. We will continue to monitor service levels and their impact 
on delivering quality service to our partners and customers. We will 
adjust our capabilities to meet changing demand. At this time, we 
cannot systemically measure customer satisfaction. However, we will 
include appropriate questions in future HCTC customer and stakeholder 
research that will give us an indication of changes in satisfaction.

C) 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.

Response:

Although the IRS and DOL have taken several steps to address this 
problem, we agree that the quality of eligibility information provided 
by the states continues to present a challenge. As your report notes, 
the lists of eligible individuals provided by state workforce agencies 
and the PBGC are accepted by the IRS as valid and form the basis for 
participation in the HCTC Program. We will work with them to develop an 
action plan for improving the accuracy of eligibility data.

D) To simplify payment processing for advance HCTC recipients 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.

Response:

The IRS agrees that accepting notification of premium changes from 
participating health plans would be an administrative improvement. 
However, because of the number of plans and individuals affected, there 
are a significant number of issues that must be addressed. As a result, 
we will develop an action plan to phase in this change so we can 
monitor results and make adjustments based on plan and participant 
feedback.

E) Given that as PBGC beneficiaries turn 65 they lose eligibility for 
the HCTC even though their spouses or other dependents may not yet be 
Medicare-eligible or have alternative sources for insurance coverage, 
the Executive Director of PBGC, in coordination with the Commissioner 
of Internal Revenue, should report to the Congress on how many PBGC 
beneficiaries previously receiving the HCTC have lost eligibility due 
to turning 65, 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.

Response:

We will work with the PBGC to develop this information and make it 
available to the Congress. This information may require the inclusion of 
estimates for some data elements that are not readily available to 
either the IRS or the PBGC. 

[End of section]

Appendix VIII: Comments from the Centers for Medicare & Medicaid 
Services:

DEPARTMENT OF HEALTH & HUMAN SERVICES: 
Centers for Medicare & Medicaid Services:
Administrator: 
Washington, DC 20201:

SEP 24 2004:

DATE:

TO: Kathryn G. Allen:

Director, Health Care --Medicaid And Private Health Insurance Issues:  
Government Accountability Office:

FROM: Mark B. McClellan, M.D.: 
Administrator:

Initialed by: Mark B. McClellan:

SUBJECT. Government Accountability Office (GAO) Draft Report: HEALTH 
COVERAGE TAX CREDIT: Simplified and More Timely Enrollment Process 
Could Increase Participation (GAO-04-1029):

Thank you for the opportunity to review and comment on the above-
referenced GAO draft report. Although the Centers for Medicare & 
Medicaid Services (CMS) was only involved in the implementation of the 
high risk pool grant programs, we agree with the intent and goals of 
the Health Care Tax Credit (HCTC) Program and feel that GAO is 
providing an invaluable service in its review of the implementation of 
the HCTC program.

Because the draft report accurately states the status of the high-risk 
pool grant programs, we do not have any substantive comments on the 
report. Attached are CMS' comments on the specific recommendations, 
none of which addresses the high-risk pool grant programs.

Attachment:

Centers for Medicare & Medicaid Services' (CMS) Comments to the 
Government Accountability Office (GAO) Draft Report: HEALTH COVERAGE 
TAX CREDIT: Simplified and More Timely Enrollment Process Could 
Increase Participation (GAO-04-1029):

We recommend that the Secretary of Labor, Commissioner of Internal 
Revenue, Administrator of CMS, and Executive Director of the PBGC take 
the following five actions:

GAO Recommendation:

To help individuals understand and comply with the multiple health 
coverage, labor, 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 slate officials, provide for a centralized resource 
for individuals to receive information 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.

CMS Response:

The Internal Revenue Service has the lead in the HCTC outreach and 
education. We defer to the Commissioner of Internal Revenue.

GAO 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.

CMS Response:

This recommendation does not impact CMS jurisdiction. We defer to the 
Secretary of Labor, Commissioner of Internal Revenue, and Executive 
Director of the PBGC.

GAO 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.

CMS Response:

This recommendation does not impact CMS jurisdiction. We defer to the 
Secretary of Labor, Commissioner of Internal Revenue, and Executive 
Director of the PBGC.

GAO Recommendation:

To simplify payment processing for advance HCTC recipients 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.

CMS Response:

This recommendation does not impact CMS jurisdiction. We defer to the 
Secretary of Labor, Commissioner of Internal Revenue, and Executive 
Director of the PBGC.

GAO Recommendation:

Given that as PBGC beneficiaries turn 65 they lose eligibility for the 
HCTC even though their spouses or other dependents may not yet be 
Medicare-eligible or have alternative sources for insurance coverage, 
the Executive Director of the PBGC, in coordination with the 
Commissioner of Internal Revenue, should report to the Congress on how 
many PBGC beneficiaries previously receiving the HCTC have lost 
eligibility due to turning 65, 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.

CMS Response:

This recommendation does not impact CMS jurisdiction. We defer to the 
Secretary of Labor, Commissioner of Internal Revenue, and Executive 
Director of the PBGC. 

[End of section]

Appendix IX: Comments from the Pension Benefit Guaranty Corporation:

Pension Benefit Guaranty Corporation: 
PBGC: 
Office of the Executive Director:
1200 K Street, N.W., 
Washington, D.C. 20005-4026:

SEP 2 2004:

Ms. Kathryn G. Allen, 
Director:
Health Care - Medicaid and Private Health Insurance Issues: 
Government Accountability Office:
441 G St., NW (Room 5A14): 
Washington, DC 20548:

Dear Ms. Allen:

Thank you for the opportunity to review and comment on your draft 
report entitled, Health Coverage Credit: Simplified and More Timely 
Enrollment Process Could Increase Participation (GAO-04-1029).

As discussed at the exit conference, the Internal Revenue Service (IRS) 
is primarily responsible for administration of the Health Coverage Tax 
Credit (HCTC) program. PBGC helps promote the program by highlighting 
it in Your Guaranteed Pension and various PBGC newsletters. PBGC also 
provides participant data to the IRS's HCTC program office so that it 
may follow up with beneficiaries regarding their potential eligibility 
under the program. Finally, PBGC refers participants and beneficiaries 
that contact our Customer Service Center regarding this program to the 
HCTC Program Customer Contact Center's 1-800 number.

Two of the report's five recommendations relate to PBGC, and we provide 
our specific responses, as follows:

GAO Recommendation:

To help individuals understand and comply with the multiple health 
coverage, labor, and tax 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 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.

PBGC Response:

PBGC defers to the other agencies responsible for administration of the 
HCTC program on this recommendation to provide a centralized resource 
for HCTC information. PBGC will continue support the IRS and coordinate 
with other agencies, as needed, to help address this recommendation.

GAO Recommendation:

Given that as PBGC beneficiaries turn 65 they lose eligibility for the 
HCTC even though their spouses or other dependents may not yet be 
Medicare-eligible or have alternative sources for insurance coverage, 
the Executive Director of PBGC, in coordination with the Commissioner 
of Internal Revenue, should report to the Congress on how many PBGC 
beneficiaries previously receiving the HCTC have lost eligibility due 
to turning 65, 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.

PBGC Response:

PBGC suggests that IRS, as the lead agency responsible for 
administering the HCTC program, should submit the report to Congress 
called for in the recommendation. PBGC has and will continue to work 
closely with the IRS in support of their administration of the HCTC 
program, particularly by providing information on PBGC recipients who 
may be eligible for the HCTC. Also, we note that PBGC benefit 
administration does not require information on spouses of all PBGC 
participants, therefore, we do not have this information for many 
participants. We can provide the IRS with spousal information on some, 
but not all, PBGC recipients.

Again, we thank you for the opportunity to review and comment on this 
proposed report and appreciate your work in reviewing this important 
program.

Sincerely,

Signed by: 

Bradley D. Belt: 
Executive Director: 

[End of section]

Appendix X: GAO Contact and Staff Acknowledgments:

GAO Contact:

John E. Dicken, (202) 512-7043:

Acknowledgments:

The following staff made important contributions to this report: N. 
Rotimi Adebonojo, JoAnne R. Bailey, Elizabeth T. Morrison, and Pamela 
N. Roberto.

FOOTNOTES

[1] Pub. L. No. 107-210, Division A, 116 Stat. 933, 935. 

[2] For this report, we refer to individuals who qualify for the HCTC 
because they lost employment as a result of trade agreements as TAA 
recipients and those who qualify for HCTC because they receive payments 
from PBGC as PBGC beneficiaries. PBGC beneficiaries are individuals who 
receive payments from PBGC because their pension plan was terminated.

[3] The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) 
requires certain employers with 20 or more employees to offer continued 
coverage for individuals, with certain exceptions, who would have 
otherwise lost employer-sponsored health coverage. Pub. L. No. 99-272, 
Title X, 100 Stat. 82, 222 (1986).

[4] High-risk pools traditionally provide health coverage to 
individuals unable to otherwise obtain private health coverage because 
of existing health conditions.

[5] For this report, we use the term HCTC to encompass both the end-of-
year and advance payment options. When we explicitly refer to the end-
of-year option, we use the term end-of-year HCTC and when we explicitly 
refer to the advance payment option, we use the term advance HCTC.

[6] For this report, we use the term HCTC recipient when we discuss 
information about individuals receiving the end-of-year HCTC or for 
information that applies to both the end-of-year and advance HCTC. We 
use the term HCTC enrollee when we discuss information applicable only 
to the advance HCTC option. 

[7] The number of individuals receiving and the number enrolled for the 
advance HCTC differ because some individuals had enrolled for the 
advance HCTC but had not yet had advance payments made to their health 
plans. 

[8] The first survey included individuals who were enrolled for the 
advance HCTC and potentially eligible individuals who had not enrolled 
for the advance HCTC. The second survey included only potentially 
eligible individuals who were not enrolled for the advance HCTC. The 
overall response rates for the surveys were 59 percent and 61 percent, 
respectively.

[9] For this report, the District of Columbia is included in our 
discussion of states, unless otherwise noted.

[10] We conducted a Web-based survey of state workforce agencies in 
every state and Puerto Rico in 2004. The District of Columbia was not 
included in this survey. We received an overall response rate of 98 
percent; however, the response rates for specific questions in the 
survey varied. Additional data from this survey are included in GAO, 
Trade Adjustment Assistance: Reforms Have Accelerated Training 
Enrollment, but Implementation Challenges Remain, GAO-04-1012 
(Washington, D.C.: Sept. 22, 2004).

[11] We report the most current data made available from IRS. In some 
instances, analyses of monthly premium data were available for the 
month of February, April, or May 2004.

[12] Qualified family members include spouses and individuals who can 
be claimed as dependents on the eligible individual's federal tax 
return, provided they are enrolled in qualified health coverage.

[13] Petitions for certification under TAA may be filed by certain 
groups, such as a group of three or more workers, a labor union that 
represents the workers, officials from the affected company, or the 
state dislocated workers unit. Labor investigates and certifies the 
petition and notifies the petitioners and the state workforce agency.

[14] TAA-eligible workers who meet the qualifying conditions for trade 
readjustment allowances except for the condition that they have 
exhausted unemployment insurance benefits are also eligible to receive 
HCTC. The qualifying conditions include that the worker is enrolled in 
or has received a waiver from training.

[15] Section 231 of the Trade Act of 1974, as amended, states that a 
trade readjustment allowance is to be paid to an adversely affected 
worker, covered by a certification, who applies for the allowance for 
any week of unemployment that begins more than 60 days after the date 
on which the petition that resulted in the certification was filed. 
Pub. L. No. 93-618, §231, 88 Stat. 1978, 2020, as amended by Pub. L. 
No. 97-35, §2503, 95 Stat. 357, 881 (1981).

[16] Because of the newness of the ATAA program and the small number of 
individuals participating, we combine any available data on ATAA 
recipients along with TAA recipients for the remainder of this report 
and refer to these groups as TAA recipients, unless otherwise noted. 

[17] PBGC was established by the Employee Retirement Income Security 
Act of 1974 to encourage the growth of pension plans, provide 
uninterrupted payment of pensions, and keep pension premiums to a 
minimum. PBGC collects premiums from employers that sponsor insured 
pension plans and can take over and assume payments for insured pension 
plans of employers that are in severe financial distress. 

[18] Other individuals aged 55 or older who may be eligible for the 
HCTC include spouses and former spouses receiving PBGC benefits as a 
survivor or beneficiary. 

[19] See 29 U.S.C. §§1161-1168 (2000), 42 U.S.C. §§300bb-1 through 
300bb-8 (2000); see also 26 U.S.C. §§4980B (2000). 

[20] State-qualified individual market coverage differs from the 
automatically qualified individual market coverage in that the latter 
is coverage purchased by an individual more than 30 days prior to the 
separation from employment that results in the individual's becoming 
eligible for TAA benefits or PBGC pension payments. In contrast to the 
state-qualified coverage, automatically qualified individual market 
coverage is not restricted to particular plans sold by insurers with 
which states have entered into an arrangement to provide HCTC coverage. 


[21] Creditable coverage includes most health coverage, including group 
coverage from an employer or other employee organization, individual 
health insurance, Medicaid, or Medicare. Creditable coverage excludes 
coverage that consists solely of excepted benefits such as dental or 
vision.

[22] These consumer protections may differ from existing federal health 
coverage or state health insurance law. For example, HIPAA-eligible 
individuals are also guaranteed the issuance of coverage if they have 
creditable prior coverage; however, to receive this protection under 
HIPAA the applicant must have had creditable coverage for 18 months, 
while HCTC-eligible individuals must only have had creditable coverage 
for 3 months. 

[23] Generally, an HCTC recipient for whom there is a break in coverage 
of 63 days or more is not considered a qualified individual and 
therefore does not have to be provided these consumer protections by a 
state-qualified HCTC plan. Nonqualified individuals, however, may still 
use the HCTC to enroll in a state-qualified health plan without the 
consumer protections applying; alternatively, a state-qualified plan 
may choose to extend some or all of these consumer protections to all 
HCTC recipients.

[24] National emergency grants are discretionary awards made by the 
Secretary of Labor. These grants are made in response to significant 
events leading to the dislocation of workers and creating a sudden need 
for assistance that cannot reasonably be expected to be accommodated 
within the ongoing operations of existing programs. National emergency 
grants are intended to temporarily expand service capacity for 
providing benefits to dislocated workers at the state and local levels 
by providing time-limited funding assistance. 

[25] These criteria include (1) restricting premiums to no more than 
150 percent of the standard risk rate (the premium charged a comparable 
individual in good health in the private market), (2) offering a choice 
of two or more coverage options, and (3) having a mechanism to continue 
to fund high-risk pool losses after the receipt of the grant.

[26] July 1, 1944, ch. 373, §2744, as added by Pub. L. No. 104-191, 
§111a, 110 Stat. 1986 (1996) (codified as amended at 42 U.S.C. §300gg-
44). 

[27] IRS generally receives the majority of its funding through 
multiyear appropriations. 

[28] The number of individuals reported to have received the HCTC in 
2003 excludes those who enrolled in December 2003 but received the 
advance HCTC payment after December 11, 2003--these payments were 
considered credits for January 2004 premiums--and those whose tax 
returns were not processed by May 28, 2004, including those with tax 
filing extensions for the 2003 tax filing season.

[29] Approximately 17,900 people had enrolled for the advance HCTC at 
some time from August 2003 through July 2004.

[30] The survey was conducted with a statistically valid sample of 
HCTC-eligible individuals.

[31] The HCTC program office maintains a call center that is available 
to potentially eligible individuals once they have had their names 
forwarded from states or PBGC. The call center provides referrals to 
the Department of Labor's Help Line or state workforce agencies as 
appropriate.

[32] We found that the number of training waivers issued by the states 
increased from about 21,000 in fiscal year 2002 to more than 30,000 in 
fiscal year 2003 and that state officials reported that a major reason 
for the increase in training waivers was to facilitate enrollment in 
the HCTC. See GAO-04-1012. 

[33] Eligible individuals can also receive the HCTC at the end of the 
year to help offset 65 percent of the cost of their COBRA premiums, 
once they qualify for the HCTC.

[34] Whereas individuals losing coverage from an employer typically 
have one opportunity to elect COBRA continuation coverage at the time 
they lose their coverage, the TAA Reform Act provides TAA recipients 
with a second opportunity to purchase COBRA coverage. This second 
opportunity is a 60-day period that begins the first day of the month 
in which they become eligible to receive TAA benefits. To qualify for 
this second election period, no more than 6 months must have elapsed 
between the date individuals lost health coverage as the result of the 
trade-related layoff that made them eligible for TAA and the date they 
seek to purchase COBRA coverage. COBRA administrators reported that 
only a small percentage of HCTC recipients have used this second 
election period to purchase coverage. 

[35] The average household income for HCTC nonenrollees surveyed in 
2003 was $34,000 compared to $36,300 for a family of two at 300 percent 
of the federal poverty level in the same year.

[36] See Leighton Ku and Teresa A. Coughlin, The Use of Sliding Scale 
Premiums in Subsidized Insurance Programs (Washington, D.C.: The Urban 
Institute, Mar. 1, 1997).

[37] These percentages were even higher for PBGC beneficiaries. For 
example, the average two-person monthly HCTC premium was almost three 
times the median pension payment received by PBGC beneficiaries in 
2003.

[38] Health plans typically require enrollees to pay for a portion of 
the cost of their medical care. These cost-sharing arrangements include 
deductibles, which are fixed payments enrollees are required to make 
before coverage applies; copayments, which are the fixed payments that 
enrollees are required to make at the time benefits or services are 
received; and coinsurance, which is a percentage of the cost of 
benefits or services that the enrollee is responsible for paying 
directly to the provider. 

[39] See Stan Dorn and Todd Kutyla, Health Coverage Tax Credits Under 
the Trade Act of 2002: A Preliminary Analysis of Program Operation (New 
York, N.Y.: The Commonwealth Fund, April 2004).

[40] See Henry J. Kaiser Family Foundation and Health Research and 
Educational Trust, Employer Health Benefits 2003 Annual Survey (Menlo 
Park, Calif., and Chicago: 2003).

[41] See Paul Fronstin, Sources of Health Insurance and Characteristics 
of the Uninsured: Analysis of the March 2003 Current Population Survey 
(Washington, D.C.: Employee Benefit Research Institute, December 2003).

[42] We selected PPO plans as a point of comparison because the 
majority of state-qualified coverage options in the seven states we 
reviewed, including both high-risk pools and arrangements with 
insurers, were also PPO plans, although health maintenance organization 
(HMO), exclusive provider organization (EPO), unrestricted fee for 
service (FFS), and point of service (POS) plans were available in some 
states. A PPO is a type of managed care plan that offers a choice of 
health care providers but offers financial incentives to use preferred 
health care providers. HMOs and EPOs are types of managed care plans 
that typically provide coverage only for services through health care 
providers within the managed care plan's network. POS plans are similar 
to HMOs, but allow use of nonnetwork providers at a higher cost to 
participants. Unrestricted FFS plans do not differentiate coverage or 
cost-sharing requirements for preferred or nonpreferred health care 
providers. 

[43] Pub. L. No. 95-555, 92 Stat. 2076 (1978).

[44] According to an official at the Ohio Department of Insurance, a 
large percentage of the individual health insurance coverage sold on 
the open market in Ohio is written as group coverage as a result of 
Ohio's health insurance laws. Health insurers in Ohio, including those 
offering state-qualified plans, create associations or trusts to sell 
individual health insurance coverage. This coverage is technically 
group coverage and is therefore subject to certain group health 
insurance laws, but is also regulated in part under Ohio's individual 
health insurance laws. The benefits and premium-setting practices 
resemble those typically observed in the individual, rather than group, 
coverage market.

[45] Whereas individual market coverage is regulated almost exclusively 
at the state level, employer-sponsored benefits are regulated by the 
federal government. For example, federal law includes certain minimum 
benefit requirements for employers that choose to offer mental health, 
mastectomy, and maternity benefits. 

[46] The first 6 days of inpatient care received in a hospital were 
subject to a $100 per day copayment, with no cost sharing required 
thereafter.

[47] According to the HCTC program office, most advance HCTC enrollees 
purchased coverage for one or two individuals. 

[48] These employee contributions represent the overall average 
contributions made by employees to purchase health coverage through an 
employer, regardless of the type of health plan. The average employee 
contributions for PPO coverage were similar to these overall averages, 
with employees contributing $44 toward the cost of one-person coverage 
and $210 toward the cost of family coverage purchased through an 
employer. See Kaiser Family Foundation, Employer Health Benefits 2003 
Annual Survey. 

[49] Although the TAA Reform Act specifically prohibited insurers from 
charging HCTC recipients higher premiums than those charged similarly 
situated non-HCTC-eligible persons, this provision has not prohibited 
the medical underwriting of HCTC applicants if the insurer uses the 
same premium-setting practices for all eligible persons who apply for 
the same coverage. One state department of insurance official raised a 
concern about the clarity of the current federal guidance regarding 
this provision.

[50] The degree of premium regulation varies by state. Not all states 
limit the extent to which insurers may vary premiums based on factors 
such as age and health status. Among those that do, a few states such 
as New York, require insurers to charge the same premium to all 
enrollees, regardless of age, health status, or any other factor, a 
practice known as community rating. Other states require modified 
community rating, which permits insurers to adjust premiums based on 
demographic characteristics such as age and gender, but not health 
status. States may also impose rating bands, which limit the amount to 
which premiums can vary based on health status, age, and other factors. 
See, for example, GAO, Private Health Insurance: Access to Individual 
Market Coverage May Be Restricted for Applicants with Mental Disorders, 
GAO-02-339 (Washington, D.C.: Feb. 28, 2002) and Beth C. Fuchs, 
Expanding the Individual Health Insurance Market: Lessons from the 
State Reforms of the 1990s (Princeton, N.J.: Robert Wood Johnson 
Foundation, June 2004). 

[51] The TAA Reform Act specifically prohibited insurers from charging 
HCTC recipients higher premiums than similarly situated non-HCTC-
eligible individuals. This health plan regarded non-HCTC enrollees who 
were eligible for guaranteed coverage under HIPAA as the similarly 
situated population. The plan also charged people eligible for coverage 
under HIPAA up to 200 percent of the standard premium rate.

[52] HCTC program officials reported that some states were not ready to 
submit the names of potentially eligible individuals by August 1, 2003, 
but all states were able to transmit names of potentially eligible TAA 
recipients by the end of August 2003.

[53] Puerto Rico's workforce agency was included in this survey; the 
District of Columbia's workforce agency was not included.

[54] In addition to its primary contractor, Accenture, IRS also 
contracted with MITRE for program management support and MITRE's 
subcontractor, The Lewin Group, for health industry expertise.

[55] IRS has requested about $35 million for implementation of the HCTC 
for fiscal year 2005 and receives separate funding for HCTC payments 
made to health plans and individuals. As of July 2004, payments to 
health plans for the advance HCTC were about $32 million, and, as of 
May 2004, payments to individuals for the end-of-year HCTC were $30 
million.

[56] IRS's contract with Accenture, its primary contractor and the 
entity responsible for establishing and maintaining the HCTC program 
office, began February 1, 2003. These operating costs do not include 
costs incurred by IRS or other federal agencies or contractors prior to 
the establishment of the HCTC program office in February 2003. These 
costs also do not include those incurred by IRS outside of the HCTC 
program office, such as costs to process end-of-year HCTC claims or 
costs to states and other federal agencies to implement the HCTC. 

[57] The HCTC task order was awarded through IRS's Treasury Information 
Processing Support Services multiple-award contract. Eighteen 
multiple-award contractors, including Accenture, are eligible to 
receive individual task order awards in some or all of the service 
areas encompassed by the contract. IRS awarded Accenture the HCTC task 
order at the end of January 2003, with work beginning February 1, 2003.

[58] According to the HCTC program office, Accenture subcontracted with 
15 other companies for work on the HCTC. An official from Accenture 
stated that while most of these subcontracts were small and made for 
specific technological skills, there was one major subcontract for call 
center activities and two other minor subcontracts for network and 
backup program support. 

[59] Labor issued guidance to states for requesting national emergency 
grant funds in its Training and Employment Guidance Letter No. 20-02 in 
March 2003. In May 2004, Labor issued additional guidance on the use of 
NEG bridge grants for premium assistance during this gap period and 
provided procedures for states to access these funds. In addition to 
funds for premium assistance, states may use a portion of the grant for 
administration, outreach, and informational activities needed for the 
HCTC, an amount generally limited to 10 percent.

[60] Since the time our survey was completed in March 2004, Labor has 
approved bridge grant applications for Utah and Ohio, and 
infrastructure grants for five states (Colorado, Louisiana, 
Pennsylvania, Utah, and Wisconsin).

[61] New Hampshire received both a seed grant and an operating grant.

[62] July 1, 1944, c. 373, §2744(c)(2), as added by Pub. L. No. 104-
191, §111(a), 110 Stat. 1984 (1996) (codified at 42 U.S.C. §300gg-
44(c)(2)). CMS interprets the act to require, among other things, that 
high-risk pools provide coverage to all individuals who are guaranteed 
coverage through HIPAA. 

[63] Specifically, we received responses from the California Department 
of Insurance and the California Employment Development Department, 
Illinois's Comprehensive Health Insurance Plan, the Maryland Health 
Insurance Plan and the Maryland Department of Labor, Licensing, and 
Regulation, the New York State Department of Labor and the New York 
State Insurance Department, the Ohio Department of Insurance and Ohio 
Department of Job and Family Services, the Pennsylvania Insurance 
Department and Pennsylvania Department of Labor and Industry, and the 
Texas Department of Insurance.

[64] We selected eight states for review that had large potentially 
eligible populations for the HCTC, had designated different types of 
state-qualified plans, and were in geographically diverse areas. One of 
these states did not designate any state-qualified coverage for HCTC 
recipients. 

[65] A PPO is a type of managed care plan that offers a choice of 
health care providers but offers financial incentives to use preferred 
health care providers. HMOs and EPOs are types of managed care plans 
that typically provide coverage only for services through health care 
providers within the managed care plan's network. POS plans are similar 
to HMOs, but allow use of nonnetwork providers at a higher cost to 
participants. Unrestricted FFS plans do not differentiate coverage or 
cost-sharing requirements for preferred or nonpreferred health care 
providers. 

[66] See Henry J. Kaiser Family Foundation and Health Research and 
Educational Trust, Employer Health Benefits 2003 Annual Survey (Menlo 
Park, Calif., and Chicago: 2003).

[67] Pub. L. No. 95-555, 92 Stat. 2076 (1978).

[68] See Kaiser Family Foundation, Employer Health Benefits 2003 Annual 
Survey.

[69] See Kaiser Family Foundation, Employer Health Benefits 2003 Annual 
Survey.

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