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WebMemo #49 on Health Care

October 18, 2001

Displaced Workers and Health Insurance

By

Congress should act quickly to address the needs of displaced workers affected by the September 11 terrorist attacks, but the assistance must be structured properly. Members interested in preserving and improving America's private health care system should not miss this opportunity to formulate policies that offer consumers options with respect to their health insurance. It is wrong to use the current crisis as a pretext to expand government control over the health care system bit by bit. Liberals in Congress, for example, have already proposed expanding Medicaid, a poorly performing welfare program that neither they nor their family would enroll in if they could avoid it. Temporarily displaced American workers and their families should not be dumped into inferior government entitlement programs, such as Medicaid. Members of Congress can take decisive steps to begin to create superior options for health care coverage that is controlled by individuals and families, rather than bureaucrats, and move the nation's troubled health care system in a new and positive direction.

The Bush Administration and numerous Members in Congress, including Senators George Allen (R-VA) and Jim Jeffords (I-VT) and Representatives Bill Thomas (R-CA) and John Boehner (R-OH), acknowledge the unique circumstances facing these displaced workers and have offered proposals to assist them during these difficult times. Each proposal provides a foundation to which crucial improvements can be made to promote individual access to quality private health care coverage.

PROPOSALS TO BUILD UPON

Proposal # 1:
Premium Support for COBRA Payments. All the proposals offer displaced workers some form of assistance to help pay for their COBRA premiums. Allowing employees to maintain their employer-based health care coverage is a good idea. However, there are some limitations to this approach. First, some employers of displaced workers will pay for their employee's COBRA coverage for up to six months. Second, those employees eligible for COBRA coverage but who are not fortunate enough to have their employers pick up the tab are required to pay up to 102 percent of the premium in after-tax dollars. A recent Kaiser Family Foundation study on employer-based health insurance found that the average cost in 2001 for family coverage was $7,056 - that amounts to almost $600 a month for COBRA coverage. For an unemployed worker without income, that is an expensive choice. Third, not all displaced workers are eligible for COBRA coverage. Some employers may not have offered coverage to their employees or the employee may have chosen not to participate due to cost. Furthermore, COBRA coverage does not apply to those employers with under 20 employees. In a 1999 Urban Institute survey, only 57 percent of all workers were potentially eligible for COBRA coverage. Only 32 percent of workers with low incomes would have the option of COBRA coverage and one-quarter of those who have COBRA would be able to continue their coverage.

Key Recommendation: Extend premium support to alternative coverage policies of the employee's choice. In many cases, an alternative policy may be more affordable than the employer-sponsored plan. Most employer-sponsored plans offer very broad benefits coverage to try to meet employees' needs. Allowing employees to decide how they want their money spent means they can choose a plan that is affordable and meets their individual medical needs. For example, an employee with a family may not have been able to afford the employer-sponsored family coverage, but by providing assistance to the displaced worker, this same family could purchase a more affordable family policy on their own, thus increasing the number of insured spouses and children. The House Ways and Means Committee's "Economic Security and Recovery Act of 2001" offers a good option. It does not limit appropriated funds only to COBRA payments, but chooses to broaden allowable use "to purchase health care coverage." Congress should allow allocated funds to be used to assist displaced workers and their families maintain or obtain private health insurance coverage of the worker's choice. A refundable tax credit, or voucher, would be preferred and work best.

This recommendation offers an opportunity to return some fiscal control to the displaced worker during these financially difficult times. It also extends financial assistance to those individuals who are not eligible for COBRA coverage. Finally, it expands the opportunity for those individuals and families who have limited or no coverage.

Proposal # 2:
Access to Unused SCHIP Funds. The President, through executive action, has announced that he will permit states to use unspent SCHIP monies to help displaced workers with health coverage. There is approximately $11 billion in unused SCHIP funds immediately available for states to access. President Bush stated that in order to use these funds, states should follow the new Health Insurance Flexibility and Accountability (HIFA) demonstration project process and has directed the Center for Medicare and Medicaid Services (CMS) to expedite these applications. The HIFA initiative encourages states to develop innovative ways to use Medicaid and SCHIP funds to expand access to private health insurance for the uninsured. According to HIFA documents, states are strongly encouraged to "maximize private health insurance coverage options."

Key Recommendation: Support the President's proposal and resist expanding Medicaid and SCHIP enrollment. Opening state access to SCHIP funds is important, however, just as important is how states will use these funds. With state budgets increasingly strained, Governors are looking for ways to increase revenue. The availability of unspent funds may entice Governors to simply place these displaced workers on Medicaid or SCHIP programs and deposit the money into their budgets. Instead of increasing the welfare rolls by enrolling displaced workers in crippling state-run health insurance, states should help these workers and their families maintain or obtain their own private health insurance. The President's proposal is right and Congress should support it and defeat any efforts to expand Medicaid or SCHIP.

This recommendation offers states a unique opportunity to promote the benefits of private health insurance. It offers displaced workers an alternative to government-run welfare programs by providing them assistance for private coverage. These hard-working Americans do not want to be on welfare, but need a helping-hand to cover themselves and their families as they get back on their feet.

CONCLUSION

Displaced workers are looking for health care security during these difficult times. Congressional opponents of patient choice want to help by expanding a government run, financed and controlled health care system. Proponents of patient choice and free markets in health care, instead of blindly deferring to the status quo, can chart a superior course that will improve the access and quality of health care for America's families. Instead of waiting for the 'right' time, Congress must take this opportunity to begin implementing good health care policy. The recommendations outlined above will inject individual choice in the health care system. Now is the time to take decisive, if only incremental, action to secure the personal freedom of patients and protect the quality of America's health care system.

Nina Owcharenko, Health Care Policy Analyst, The Heritage Foundation

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