Many hard-working Americans have lost their jobs and their health insurance. Many of them are joining, or have already joined, the growing ranks of America's uninsured, which now numbers 41.2 million Americans. Before adjournment, Congress can still prevent these unemployed workers and their families from joining the ranks of the uninsured. Members of Congress should give unemployed workers financial assistance to help them buy private health care coverage of their own choice.
Congress should help unemployed workers without insurance coverage by giving them a health care tax credit. Congress should not consider extending unemployment compensation benefits without first giving unemployed workers health care assistance. Congress has already considered offering health care tax credits to unemployed workers. Twice, the House of Representatives passed legislation to give health care tax credits to displaced workers in the economic package.1 The Senate, however, refused to act on it. More recently, the Trade Adjustment Assistance Act, signed into law this summer, included health care tax credits, although restrictive in use, for workers who lost their jobs in part because of expanded international trade as well as for workers who receive benefits from the Pension Benefit Guarantee Corporation (PBGC).2 Health care tax credits would offer direct financial assistance to unemployed workers that is both meaningful and practical. Congress should give these unemployed workers the help they need to buy private health care coverage of their choice, giving them ownership and control of their health care decisions.
Congress should also respect the personal choice of individuals and families by letting them choose they kind of coverage they want. Some Members of Congress want to limit the coverage options available to workers with tax credits, specifically preventing the credits from being used for policies in the individual market. Interestingly, in a recent survey conducted by the Commonwealth Fund, uninsured adults between the ages of 19 and 64 expressed an overwhelming preference for private-sector health care options, including policies from the individual market. Asked what type of health insurance they would prefer if they could afford it, 34 percent said that they would prefer employer-based insurance, and 20 percent said they would prefer individual health insurance.3 Only 12 percent expressed a preference for Medicare or Medicaid coverage, and only 18 percent said that they would prefer coverage from a new and unspecified government program.4
The Limits of COBRA Coverage
There is a provision in the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) that allows workers who previously had employer-based coverage to maintain that policy temporarily after they leave their job provided they pay for the full cost of the policy, both employer and employee portions, and a small administrative fee. While COBRA coverage offers workers a chance to maintain their employer-based insurance, it has its shortcomings.
First, COBRA coverage is expensive, even with a subsidy. In 2002, the average cost of an employer-sponsored family policy was approximately $8,000.5 A recent Commonwealth Fund survey found that if given a subsidy, over 50 percent of COBRA-eligible workers would likely take up COBRA coverage.6 However, when an unemployed household is struggling with a limited income, every penny counts. Policies on the individual market, in many instances, may be a more affordable option. Therefore, Congress should allow unemployed workers to have a full range of coverage options and allow them to shop for the best deal. Workers are best equipped, in taking into account their personal, financial and medical situation, to determine which policy meets their needs and the needs of their family.
Second, not all workers qualify for COBRA coverage. According to the Kaiser Family Foundation, only 57 percent of all workers (and their adult dependents) would have qualified for COBRA coverage in 1999,7 and only 32 percent of lower-income workers (below 200 percent of the federal poverty level) would have qualified.8 If Congress restricts the choice of coverage and prohibits the purchase of coverage on the individual market, a significant number of unemployed workers will have no place to buy coverage.
To address these shortcomings, Congress does not need to create a new place for these workers to buy coverage. First, it would be time consuming, leaving unemployed workers and their families uninsured. Second, the individual market already provides coverage for nearly 10 million individuals and can offer immediate coverage for hard-working Americans who need it. Workers should have the freedom to choose the plan they want, not the plan the government tells them to get.
WHY UNEMPLOYED WORKERS SHOULD GET CONGRESSIONAL HELP
Most workers get their health care coverage through their place of work. Unfortunately, this means that when workers lose (or change) jobs, they often loose their health insurance. With a changing economy and a transient workforce, loss of coverage and breaks in coverage become more and more common. The Department of Labor estimates that the average 32-year-old has already changed jobs an average of nine times during his or her short working life.9 Health care tax credits would bring greater continuity in coverage by allowing workers to remain coverage regardless of the job or job status.
Unemployed workers also lose the unlimited tax break they get when they participate in employer-based coverage. Current law allows workers to receive a tax break for health care benefits offered to them by their employers. This exclusion of the value of health care benefits from taxation amounted to an estimated $126 billion in federal health care tax breaks in 2000 alone.10 But if a worker is separated from his or her employer-based coverage, that worker no longer has the benefit of the generous tax exclusion.
Therefore, unemployed workers, struggling with a limited income, must use after-tax dollars to buy coverage for themselves and their families. Fixing the tax treatment of health insurance by offering individual health care tax credits would go a long way toward improving access to, and the affordability of, health insurance coverage for uninsured Americans and would bring fairness to the tax code's treatment of health care coverage bought outside the place of work.
OTHER STEPS CONGRESS CAN TAKE TO HELP UNEMPLOYED WORKERS
Besides giving unemployed workers a health care tax credit, there are other legislative actions Congress can take to help ease the difficulties these workers face with regard to health care coverage. Members of Congress should also change restrictive and outdated laws. For example, Congress should:
Allow workers to roll over and keep any unspent balances in flexible savings accounts (FSAs). In today's workforce, it is common for employers to offer their employees a flexible spending account, which allows employees to set aside a specified amount of pre-tax dollars to use on qualified medical expenses. However, under current law, any unused money set aside must be surrendered to the employer at the end of each year. Congress should eliminate this penalizing provision and allow workers to roll over their unspent funds from year to year, rewarding them for saving for future health care expenses. Congress should also allow workers, upon separation from their employer, to withdraw or deposit into another tax-preferred account any unspent balances in their flexible savings account. It is the worker's money that is set aside each year, and workers should be permitted to take the money they have saved with them.
Remove the restrictions on medical savings accounts (MSAs). According to recent Department of the Treasury statistics, 73 percent of persons who purchased a medical savings account were previously without insurance.11 From their original passage, medical savings accounts have been burdened with overly restrictive provisions. Congress should remove those provisions that prevent greater participation. This includes such improvements as (1) making the accounts permanent; (2) removing the cap on the number of policies that can be sold; (3) eliminating the restrictions on eligible participants; (4) lowering the required deductible; and (5) allowing both employer and employee contributions. MSAs can be a practical and affordable coverage solution for individuals and families, especially if the cost of traditional first-dollar coverage is too expensive.
Hard-working Americans should not be without health care coverage. Perhaps it is impossible to enact a comprehensive bill to resolve the problem of the 41.2 million Americans who are without coverage, but there is no reason why Congress cannot take a significant step to reduce the problem or prevent it from getting worse. One obvious place to start is with those who lost their insurance coverage when they lost their jobs.
As the House and the Senate consider extending unemployment compensation benefits, Members of Congress should not forget the hundreds of thousands of unemployed workers and families who lost their health care coverage with their jobs. While Congress may not be able to resolve the entire problem of the uninsured this year, it can make significant progress by giving unemployed workers a health care tax credit to help them get health care coverage they want and can afford.
Nina Owcharenko is a Health Care Policy Analyst at The Heritage Foundation
3 Jennifer N. Edwards et al., "The Erosion of Employer Based Health Coverage and the Threat to Worker's Health Care: Findings from The Commonwealth Fund 2002 Workplace Health Insurance Survey," Issue Brief, Commonwealth Fund, August 2002, p. 7.
5 Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits, 2002, Annual Survey (Menlo Park, Cal.: Kaiser Family Foundation, 2002), pp. 13, 23.
6 Edwards et al., p. 4.
9 The Honorable Elaine L. Chao, U.S. Secretary of Labor, " Making America Work: Meeting the Challenges of the 21st Century Workforce," June 20, 2001, at www.dol.gov/_sec/media/speeches/main.htm.
10 Council of Economic Advisers, " Health Insurance Credits," February 14, 2002, p. 4, at http://www.whitehouse.gov/cea/HealthCredit_Feb02wp.pdf.
11 "73 Percent of MSAs Purchased by Previously Uninsured; MSAs Vital to Help the Uninsured Get Coverage," press release, Council for Affordable Health Insurance, October 3, 2002.