1. Tax Credit Provisions of the Trade Adjustment Assistance Act Presented by Janet Trautwein NAHU Vice President of Government Affairs January 2004

2. Trade Adjustment Assistance Tax Credit  The Trade Adjustment Assistance Act signed by President Bush in August of 2002 for the first time provides health insurance benefits for eligible individuals in the form of a tax credit for 65% of qualified health insurance premiums.  The premium amount is not capped, and eligible individuals are responsible for payment of the remaining 35% of the premium.  The tax credit is refundable which means that individuals do not have to owe income taxes in order to qualify.  Eligible individuals are:  The TAA tax credit does not require that a person be previously insured in order to qualify for the tax credit, however, individuals without prior coverage would be subject to the same pre-existing conditions limitations as participants in the type of purchasing option the state selected. If a TAA eligible individual has been previously insured for three months and has less than a 63-day break in coverage, the option selected must extend coverage without application of a pre-existing conditions waiting period.  These new provisions will require state legislative or regulatory changes in many states. Therefore, coverage under TAA other than COBRA, coverage under a spouse's employer-sponsored plan, or existing individual health insurance coverage may not necessarily be immediately available options, or a state may choose not to offer them at all. Even with options of a type that may already be in existence in the state, modifications may need to be made to existing laws and regulations to allow the waiver of the pre- existing conditions waiting period for those with three months of prior coverage.  The Trade Adjustment Assistance Act and High Risk Pools  TAA also included new funding for the development of high-risk pools as well as funding to help offset pool losses. Since both health care and health insurance costs are rising, this new funding will provide improved stability for existing high-risk pools, and encourage the development of pools in the 10 states without this important safety net.  High-risk pools play in an important role in the health care system. A risk pool typically is a state-created non-profit association that offers comprehensive health insurance benefits to individuals with pre- existing health problems.  People who typically seek coverage in a high-risk pool are either those who have been turned down for coverage in the private individual market due to a chronic illness or condition, those who have found they can only access restricted coverage due to their health, or those who have coverage that costs more than what is available from the pool.  Risk pool insurance typically costs more than standard insurance coverage; but by law has a cap on premiums that can be charged in order to provide cost protection. Premiums range from 125% to 200% of a standard premium and are capped by state law. Each risk pool inherently loses money, because it isn't feasible to pool a group of individuals known to have major health problems and expect their premium contributions to cover the entire cost of care. For this reason, each pool needs some form of subsidy, often an assessment made to insurance carriers in the state, or some other funding mechanism.  Seed Money  TAA authorizes grants of up to $1 million each to states for the creation of a high-risk pool if they don't have one, or if their existing pool is not currently qualified. Many states have been unable to implement high-risk pools due to funding shortfalls, and the ability to obtain initial start-up funds will be extremely helpful in getting pools started.  Funding for Pool Losses  TAA also provides funding to offset losses experienced by pools. It is important to note that this funding is not intended to be the sole source of funding for losses in excess of premiums. The funding is instead intended to stabilize existing pools, make them more affordable, and provide a means for the few pools that are either closed or have waiting lists to make the changes necessary to ensure that their pools can be open on a continual basis.  In order to qualify for this assistance with losses, high-risk pools must meet the following requirements:  Premiums must be capped at 150% of a standard rate  The pool must offer two or more plan options  The pool must have a mechanism other than federal funding to ensure continual funding past the end of 2004  The pool must be open for HIPPA eligibles.  A total of $20 million has been allocated for seed money for new pools, and a total of $80 million as been allocated for funding of losses through the end of 2004.  For questions on this issue contact Janet Trautwein, Vice-President of Government Affairs, at (703) 276-3806 or jtrautwein@nahu.org jtrautwein@nahu.org  The Trade Act of 2002 extended and amended the TAA program and authorized a federal income tax credit for 65% of qualified health insurance premiums paid by TAA recipients.  Eligible individualsThe tax credit will first be available on tax year 2002 Form 1040 returns.  Advancement of the credit on a monthly basis will be available in August of 2003.

3. Who is Eligible?  The first category is those individuals and their families certified as eligible for benefits under TAA because they are impacted by US trade agreements.  The second category is individuals age 55-64 and their families who are receiving benefits from the Pension Benefit Guarantee Corporation (PBGC).  Eligible individuals must not be covered by other specified coverage, which is basically coverage for which more than 50% of the premiums are paid for the eligible individual by an employer or spouse’s employer.

4. Who is Eligible?  Eligible individuals may or may not have prior coverage.  Eligible individuals who are also Qualified Individuals have additional rights under TAA.  Qualified individuals who have at least 3 months of prior creditable coverage are eligible to purchase qualified health insurance coverage on a guarantee issue basis with no pre-existing conditions limitation  Premiums and benefits for qualified health insurance must be the same as for other similarly situated individuals.  The “qualified” eligible provisions applies to purchasing options that a state may elect, but not to the three "automatic" options.

5. Qualified Health Insurance  Qualified health insurance can be divided into two categories: –Automatic options (require no state action) COBRA Coverage through the group health plan of the individual's spouse Individual coverage if in force at least 30 days prior to separation of employment

6. Other Qualified Insurance  States may elect one or more of the following additional options: State-based continuation coverage Coverage through a high-risk pool Coverage through a state employee health insurance program Coverage through a program comparable to the state employee health insurance program Coverage arranged between a state and a group health plan, an issuer of health insurance coverage, an administrator, or an employer Coverage through a private purchasing pool Coverage through a state operated health plan that does not receive federal financial participation

7. The Role of States  States play a very important role in the implementation of the TAA tax credit  Not all eligible individuals will have available one of the automatic options  Unless a state makes a qualified option available, an eligible individual may have a 65% tax credit, but no place to spend it.

8. Progress To Date  A large number of states have elected to provide coverage through a state high-risk pool  A number of other states have made arrangements with a health insurer to provide coverage.  28 States have completed the process of electing a purchasing option for TAA eligibles  Three of these states have named their state mini- COBRA as their only option.  Negotiations are under way in many other states.

9. States that have Elected Plans  Alabama  Alaska  Arkansas  Colorado  Connecticut  Florida  Illinois  Indiana  Kentucky*  Pennsylvania  South Carolina  Tennessee  Texas  Vermont * Elected State Continuation  Maine  Maryland  Michigan  Minnesota  Montana  Nebraska*  New Hampshire  New Jersey*  New York  North Carolina  North Dakota  Ohio  Virginia  West Virginia

10. Prognosis  It has been difficult in some states to get a state elected option going due to a variety of reasons: –Market conditions in the state –State budget problems –A small population eligible in the state –State regulations or other conditions that make it a poor risk for insurance carriers –Lack of flexibility in the federal legislation

11. Current Efforts  On October 1, 2003, Senators Charles Grassley (R-IA) and Max Baucus (D-MT) introduced S1693 – The Health Care Tax Credit Expansion Act of 2003  This piece of legislation would expand the TAA tax credit to those who are currently on unemployment insurance.  This would expand the eligible population from the current approximately 260,000 to over 4,000,000.

12. TAA – High-risk Pools  Up to $1 million per state is available for the creation of new high-risk pools. –Maryland and South Dakota have been awarded seed money grants –Seed money must be applied for by March 30, 2004 and appropriated by September 30, 2004 –California, New Jersey, Georgia, Ohio, North Carolina, and Massachusetts have legislation in the works for this year that if passed will establish a qualified high-risk pool. –It is doubtful that many if any of these states will meet the March 30 deadline.

13. Other Pending High-risk Pools  A number of states have either expressed strong interest or introduced legislation to establish a high-risk pool that may not make the March 30 deadline –Arizona, Delaware, the District of Columbia, Tennessee, Louisiana, Maine, Nevada, and Florida  On March 6, 2003, Congressman Edolphus Towns (D-NY) introduced H.R. 1110 to expand federal grants to high-risk pools.  Other legislation to expand funding has been proposed but not introduced in the Senate.

14. TAA – High-risk Pools  An additional $80 million over two years is available for existing pools to offset losses –Premiums must be capped at 150% –The pool must offer two or more choices –The pool must have a mechanism for continual funding –The pool must be open for HIPAA eligibles  The following states qualified for loss funding for their high-risk pool losses: –Alaska, Arkansas, Colorado, Connecticut, Illinois, Indiana, Iowa, Kansas, Kentucky, Minnesota, Mississippi, Montana, Nebraska, New Hampshire, North Dakota, and Oklahoma

15. High-risk Pools  Whether or not states take advantage of the new funding opportunity, high-risk pools in 32 states will continue to serve as an important safety-net for individuals with health conditions.  This type of safety-net ensures that these individuals have access to affordable high- quality health insurance coverage in a way that preserves market stability.

16. States with High-risk Pools  Alabama  Alaska  Arkansas  California  Colorado  Connecticut  Florida  Idaho  Illinois  Indiana  Iowa  Kansas  Kentucky  Louisiana  Maryland  Minnesota  Missouri  Montana  Nebraska  New Hampshire  New Mexico  North Dakota  Oklahoma  Oregon  South Carolina  South Mississippi  Dakota  Texas  Utah  Washington  Wisconsin  Wyoming