October 04,2004

GAO Report on the Health Coverage Tax Credit


To: Reporters and Editors
Re: GAO report on the health coverage tax credit
Da: Monday, Oct. 4, 2004

Sen. Chuck Grassley, chairman of the Committee on Finance, today issued the following comments regarding a new report of the Government Accountability Office (GAO) on the health coverage tax credit (“HCTC”) program established by the Trade Adjustment Act of 2002. Sen. Grassley and Sen. Max Baucus, ranking member, requested this report, GAO-04-1029, which can be accessed at www.gao.gov.

“For many people, losing their jobs also means losing access to affordable health coverage.When faced with housing, food, and other needs, keeping health care insurance coverage can becomeout of reach. The HCTC program provides certain displaced workers and Pension Benefit GuarantyCorporation (PBGC) recipients assistance in obtaining health coverage. The program breaks newground in that it helps these individuals by providing a tax credit in advance to help them offset thecost of health insurance for them and their families. The credit equals 65 percent of the cost ofqualified health coverage.

“As with most health care programs, like Medicare, Medicaid, and the State Children’sHealth Insurance Program, the HCTC has a lot of moving parts. The Internal Revenue Service,Department of Labor, the Centers for Medicare and Medicaid Services, the PBGC, state agencies,and health plans all play a role in its operation. They deserve great recognition for their diligentefforts to make the HCTC available at year end in 2002 and on an advanced basis as of August 2003.

“Senator Baucus and I requested that the GAO examine the program’s experience to date.We wanted to know who was taking advantage of the HCTC, what type of coverage was available,and overall, how the program is going, among other questions.

“The GAO report clearly shows that the HCTC was implemented at record speed and isproviding valuable health care coverage to thousands of displaced workers and PBGC recipients. Theprogram is a ‘first of its kind’ effort to provide federal assistance for purchasing health careinsurance through the use of a tax credit. In a sense, the HCTC has been a live demonstration of thisconcept, and it is showing that the tax credit is an effective means for delivering assistance. TheGAO report provides important lessons learned from implementing the HCTC that will guideCongress and the agencies as we work to improve the program. That said, there are a couple ofpoints to bear in mind.

“First, Congress wanted to make the HCTC available as quickly as possible because youdon’t know when you might have a serious health problem. Facing a health crisis without insurancewould make it all the more worse. The IRS had to acquire the systems and human resources capacityon a very short time frame to implement the HCTC. Congress was aware of the challenges the newprogram would present when it was enacted, but the necessity of getting the HCTC available to folksin as timely a manner as possible overrode these considerations.

“Second, initially Congress expected that more than 200,000 individuals would be eligiblefor the HCTC. The GAO reported that not all individuals initially identified as eligible will meet allof the requirements, citing surveys conducted by the IRS. So simply looking at the proportion ofindividuals receiving the credit compared to initial eligibility numbers will not likely lead to accurateconclusions. In fact, the GAO agreed, noting that determining an actual rate of participation isdifficult for this reason. In addition, the enrollment numbers for the HCTC do not reflect all of thedependents who receive the HCTC as well.

“Without a doubt, the GAO found there’s room for improvement, especially when it comesto making people aware of the HCTC program and getting them enrolled. Potential recipients oftenhave to contact two or more agencies. In one case, the GAO found that one agency would refer apotential recipient to another agency only to have that agency refer the individual back to the originalagency. That’s an easy recipe for frustration that could cause some people to simply give up. Theagencies involved in administering the program clearly need to work on that through bettercoordination among state and federal agencies involved in enrollment and in providing betterinformation.

“The GAO found that right now, it can take three to six months for an individual to getenrolled in the advanced HCTC. During that time, the recipient has to pay the entire premium.Although those payments can be claimed at year-end, for someone who lost a job that’s a lot ofmoney. We need to examine ways to shorten that time frame.

“While the GAO report did identify some early implementation issues with the HCTCprogram, it shows that an advanced HCTC program can and is delivering benefits to displacedworkers and PBGC recipients. I look forward to working with my colleagues in the coming monthsto examine the GAO’s recommendations for program improvements and to work with the agenciesinvolved in its operation to make the HCTC program stronger.”